Developing economies reliant on agriculture are more exposed to climate risks, McKinsey finds


Herd boys pull out an ox stuck in muddy waters in the drying Mabwematema dam 20km North of Zvishavane, on December 25, 2019.

Zinyange Auntony | AFP | Getty Images

Countries and regions with lower per capita GDP levels are generally more exposed to climate change, according to McKinsey Global Institute’s newest climate risk report.

“Poorer regions often have climates that are closer to physical thresholds. They rely more on outdoor work and natural capital and have less financial means to adapt quickly,” the report said.

For example, a changing climate “could both improve and degrade food system performance,” the report said. In some regions, crop yields may increase, while in others environmental conditions could cause some crops to fail entirely, according to McKinsey.

Countries like Canada, Russia, and parts of northern Europe may benefit slightly from the change in climate conditions as warmer temperatures may lead to greater agricultural yields, according to the global consulting firm.

Jonathan Woetzel, director of the McKinsey Global Institute, told CNBC in an email that adaption is essential to help manage risks. He said, however, immediate steps could be costly for affected regions.

“Mobilizing finance to fund adaptation measures, particularly in developing countries, is also crucial,” and it may require more public-private partnerships, according to the director. Key adaptation measures include protecting people and assets, building resilience, reducing exposure, and ensuring that appropriate financing and insurance are in place, Woetzel said.

To battle climate change effects, “governments of developing nations are increasingly looking to insurance/reinsurance carriers and other capital markets to improve their resiliency to natural disasters as well as give assurances to institutions that are considering investments in a particular region,” he said.

According to McKinsey, since the 1880s, the average global temperature has risen by about 1.1 degrees Celsius with significant regional variations.

As the climate changes, hazards are likely to intensify and have a broader physical impact, affecting more regions. McKinsey said that in turn would hit its workability indicator, which measures outdoor working hours lost to extreme heat and humidity. It also factors in hazards like heat stress, heatstroke and other human health conditions affected by the change in climate.

McKinsey found that the top quartile of countries, based on GDP per capita, will have a much smaller increase in risk by 2050 than the bottom quartile when it comes to its workability indicator.

According to the National Bureau of Economic Research, countries that derive a significant percentage of their GDP from agriculture could be most at risk as intense heat and precipitation kill crops and delay fieldwork.

Ultimately, no one is coming out as a winner against climate change. A 2019 study by the National Bureau of Economic Research reported that an increase in average global temperature by 0.04 degrees Celsius per year will reduce world real GDP per capita by 7.22% by 2100.

Extreme weather is already more frequent in many parts of the world.

Severe precipitation has become more common in parts of China, Central Africa and the east coast of North America. Hurricanes will likely increase in frequency in both the southeastern United States and Southeast Asia. Drought is expected to increase in parts of the Mediterranean, southern Africa and Central and South America, according to the report.

And with such dramatic weather changes, increased temperatures are expected to spur more intense heat waves. Changing rainfall patterns and snowmelt timing will impact renewable freshwater supplies in many countries, especially in southern Africa and Australia, according to McKinsey.

These dire effects are already apparent in Australia. The country has been burning since September, with no end to the catastrophic destruction in sight. Officials believe the fires could take months to extinguish.

“The wildfires in both California and Australia are devastating. While it is not possible to positively attribute any one fire to climate change, in general, experts expect the frequency and severity of forest fires to increase going forward,” Jonathan Woetzel, director of the McKinsey Global Institute, told CNBC in an email.

McKinsey said these changes endanger trillions of dollars in economic activity and hundreds of millions of lives. The report said many businesses are not adequately accounting for the cascading effects of climate change.

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