Extreme events pose risk to global economy

According to a World Economic Forum study, related risks will increase in the coming years. A specialist from Brasil's Ministry of Finance suggests ways to mitigate the effects of the climate crisis and avoid economic losses.

Extreme weather events are becoming an increasingly significant threat to the global economy. Data from the World Economic Forum's (WEF) Global Risks Report 2024 show that the effects of climate change are one of the most pressing concerns for the next two years and could worsen over the decade, causing severe economic losses and affecting the growth of countries. The risks are particularly high for developing ones, more vulnerable to climate disasters.

The study also reveals that frequent storms, floods, and droughts can destroy infrastructure, impact financial stability, and disrupt supply chains by raising agricultural production costs and intensifying global inequality. The way forward is a concerted worldwide effort to mitigate these risks.

According to Cristina Reis, Undersecretary for Sustainable Economic Development at the Brazilian Ministry of Finance's Secretariat for Economic Policy, the global effort to face this scenario entails "preparing countries to avoid these climate risks, promoting economic development paths that are environmentally sustainable and socially just".

Reis emphasizes the importance of replacing the most polluting economic activities with those that can preserve, conserve, protect, and regenerate ecosystems. This proposal is consistent with the solutions presented in the Forum's study. She says the challenge is to provide mechanisms for ecological transformation capable of reacting to climate disasters and "providing the most efficient, swift, and humane assistance to the victims and the affected territories". According to the expert, the measures are central to the Ecological Transformation Plan being implemented in Brasil.

International cooperation

According to the Forum's analysis, global cooperation is under pressure, which may hinder the effectiveness of climate-related measures, mainly investments in resilient infrastructure, mitigation, and adaptation policies. Because the causes of extreme weather events are numerous, economies must plan for an uncertain future and invest in coordinated actions to avoid catastrophic consequences for the planet. 

Reis points out that collaboration between countries can spark a chain reaction of crisis-related actions. "In addition to participating in international funds, it is possible to use multilateral development banks to mobilize resources and guarantee the application of the amounts allocated to countries, both for projects with sovereign guarantees and those without guarantees," she stated. 

Advantages for developing countries

During the first half of 2024, at least half of the G20 member countries experienced extreme weather events such as floods, above-average rainfall, wildfires, high temperatures, or severe cold spells. India, Germany, France, Brasil, Indonesia, and the United States were among the countries that experienced climate emergencies. 

Developing economies have faced even more devastating impacts, but the prospect for these nations to cope with the challenges is encouraging. "Despite financial and technological constraints, most developing countries possess competitive advantages for a sustainable economy. Their vast biodiversity and clean energy matrix are valuable assets in promoting the ecological transformation we seek," said the economist. 

Actions to strengthen these countries’ capacities to deal with the crisis must be proportional to the economic damage and human lives. "We must strengthen local capacities and develop economic, environmental, climate and social policies for this purpose, engaging the productive sector, opening, expanding and strengthening markets that bring new economic, business and employment opportunities. In addition, countries can use these advantages for sustainability, to attract foreign investment, and develop domestic investment," said Reis.

Role of the Group of 20

The Undersecretary of the Ministry of Finance believes that it is critical to prioritize dialog. In this regard, the G20, an economic cooperation forum that brings together the world's largest economies, plays an important role in coordinating efforts among member countries to mitigate climate impacts. "The (G20) countries are diverse and unequal in economic, technological, environmental, and social terms. They bring a myriad of perspectives and pluralities that need to be respected and, at the same time, preserved," she points out. 

Cristiana Reis concludes that it is fundamental that the forum address measures to restructure the international economic agenda and seek to develop financial instruments for nature-based solutions. 

"These can be achieved, for example, through the expansion of initiatives that reward countries for conserving forests and ecosystems, such as biodiversity credit, green bonds, or debt for nature, a reduction in public debt with a conservation counterpart called SWAP (swapping the rate or profitability of financial assets), Debt for Nature. The reform of international climate funds to facilitate operations with developing countries also plays a significant part, setting the goal of issuing sustainable sovereign bonds, offering the possibility of contracting debts in local currencies, promoting exchange risk protection mechanisms, and so on," said Reis.

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