Key findings from 'Climate change: a risk to the global middle class' include:
The added cost of climate change
The financial costs of climate-related events for both governments and taxpayers are already apparent. Despite the increased threat of natural disasters, the global middle class is not well insured. In the US, which has the highest level of insurance penetration in our study sample, 32 percent of weather-related losses remain uninsured. Those without access to coverage are subsequently reliant on the safety net provided by the US government, which in turn has economic consequences for US taxpayers: between 2011 and 2013, the cost of US federal disaster relief for hurricanes, floods and droughts totaled USD 136 billion, equating to USD 400 annually per household.
In less developed and newly industrialized nations, the middle class is typically underinsured, with emerging markets showing very low insurance penetration relative to property value (e.g. 0.12% for China and 0.07% for India).
Desperate times lead to desperate measures
In 2000, nearly half of the global population of 6 billion people lived in cities; the United Nations expects this figure to rise to 60 percent by 2025. Such climate-driven population shifts have the potential to create and exacerbate conflict.
The US Department of Defense argues that in already volatile situations climate change can act as a 'threat multiplier,' intensifying existent hostility and tensions. For example, while news coverage focuses on Syrians fleeing war and economic collapse for Europe, the fact that Syria suffered an unprecedented drought from 2006 to 2011 is rarely mentioned. In the course of five years, Syria lost 85 percent of its livestock and saw crop production plummet, child malnutrition worsen and the subsequent migration of 1.5 million residents from rural to urban areas. These conditions led to protests, which ultimately escalated into civil war.
Too hot to handle?
Research has shown that as temperatures rise beyond 30 degrees Celsius (86 degrees Fahrenheit), humans can struggle to adapt to their surroundings, and mortality rates rise. As of 2015, nearly 25 percent of the cities analyzed already have median annual temperatures above 20 degrees Celsius (68 degrees Fahrenheit). A study of 15 European cities over a 10-year period estimated that even a 1 degree Celsius (1.8 degrees Fahrenheit) increase above the respective average summer temperature threshold resulted in a two to three percent increase in mortality.
In the longer term, temperatures are predicted to rise to a level that will not only endanger human health, but may also stress physical infrastructure to breaking point. Given global interconnectedness, even localized climate-related events have the potential to undermine the world economy.
From analysis to action
Nevertheless, the report concludes that the global middle class is increasingly aware of and adapting to climate change, albeit modestly and sporadically. In view of the middle class's political and social importance, growing economic vulnerability may well translate into pressure for innovative policy making. Whether investment and ingenuity are enough to preserve middle-class wealth and status, however, remains to be seen.
To find out more and to read the full report, please visit www.ubs.com/climatechange
This UBS study leverages the most recent scientific data on temperature-related mortality and flood risk in global cities. Using this data, combined with a bespoke database of middle-class household economic behavior, we evaluated the exposure of the middle class to climate-change risk and the extent to which it is adapting. The sample referenced in this report includes 215 cities across 15 countries at different stages of economic development.
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About UBS's climate change commitment
UBS believes that climate change is one of the most significant challenges of our time. The world's key environmental and social challenges - such as population growth, energy security, loss of biodiversity and access to drinking water and food - are all closely intertwined with climate change. This makes the transition to a low-carbon economy vital. UBS supports this transition through a comprehensive climate change strategy.
UBS is determined to support its clients in preparing for success in an increasingly carbon-constrained world. As a leading global financial services provider, UBS focuses its climate change strategy on risk management, investments, financing, research and its own operations. Key commitments include:
Supporting renewable energy and clean-tech transactions;
Only supporting transactions of companies operating coal-fired power plants if they have a strategy to reduce coal exposure or adhere to the strict greenhouse gas emission standards recommended by leading international agencies;
Not supporting certain coal mining companies and significantly limiting lending and capital raisings provided to the sector;
Securing 100% of electricity from renewable sources by 2020, thereby reducing its own greenhouse gas footprint by 75% compared to 2004 levels.
For more information, please visit www.ubs.com/climate.
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