The climate crisis may also be a ticking financial time bomb

Bankers and corporate CEOs are already struggling to manage growing financial risks. New risks from climate change could push things over the edge.

- David Fogarty

The seeds of the next financial crisis have already been sown. They are quietly weakening growth, swelling debt and creating shocks with cascading effects.

The driving force? Climate change.

Asia could lose up to 17 per cent of gross domestic product (GDP) by 2070 - and as much as 41 per cent by the end of the century - if climate change goes unchecked, the Asian Development Bank warned in a 2024 report.

In Southeast Asia, the risks are especially acute. The region is highly exposed to typhoons, floods, rising seas and extreme heat, while many economies depend heavily on climate-sensitive sectors such as agriculture, fisheries and tourism, said Mr Daniel Fairweather, head of food security systems and biodiversity at Howden, an insurance broking firm.

By 2030, over 90 per cent of Southeast Asia's population will be exposed to intense heat, undermining worker productivity and food security, he added.

None of this is a surprise. Still, it's starting to dawn on financiers how immense the financial risks are with new analysis showing how deep, systemic and rapidly escalating they can be.

"Climate change has the potential to create systemic financial risks that, if unmanaged, could escalate over time," said Mr Fairweather.

The danger, he said, lies in how multiple pressures could converge to weaken national responses to shocks. GDP could contract owing to declining productivity and disaster losses. Sovereign credit ratings could be downgraded as countries struggle with mounting adaptation costs. Food and energy price shocks could roil consumers and markets. And now, rising uninsurability in some places could threaten asset prices.

GROWING FINANCIAL RISKS IN SOUTHEAST ASIA

Bankers are increasingly worried.