The global cost-of-living crisis threatens to railroad efforts to combat climate change, “potentially leading to dire planetary and societal consequences,” the World Economic Forum (WEF) warned today.
Soaring energy and food prices are forcing governments and private businesses to turn to cheaper, often dirtier resources to produce goods and services.
As a result, “the risks of a slower and more disorderly transition” to net-zero has “now turned into reality,” the WEF said in its annual global risks report launched ahead of hosting the yearly economic Davos conference next week.
Russia’s invasion of Ukraine roiling international oil and gas markets has prompted Europe to inject €50bn (£44bn) into new fossil fuel projects, the report said, to meet energy needs. Other countries have reignited coal plants to boost energy supplies.
Inflation, higher interest rates and greater social security spending has stretched Western nations’ public finances, while sky high input costs for businesses risk “investments in greener production methods” being kicked into the long grass, the Geneva-based organisation said.
Although gas costs have returned to their pre-Russian invasion of Ukraine levels, they are still above their long-term trend.
Global food prices remain on an upward march, prompting the WEF to warn poorer countries will bear the brunt of a cost of living crisis that is likely to be a fixture for the next two years.
The US Federal Reserve, Bank of England and European Central Bank’s efforts to tame inflation with aggressive rate hikes has piled pressure on poorer countries’ finances as most of their debt is denominated in wealthier countries’ currencies.
“A low-growth, low-investment and low-cooperation era” will undermine “resilience and the ability to manage future shocks,” Saadia Zahidi, managing director of the WEF, said.
Insurers are likely to be incentivised to avoid dishing out cash to poorer countries to cover damages related to rising temperatures due to their heavy exposure to climate-related natural disasters.
The WEF report warns just seven per cent of economic losses from flood events in emerging markets – and 31 per cent in developed markets – have been covered by insurance over the past 20 years.
Insurers have warned worsening climate risks will lead to higher insurance premiums, with Swiss Re forecasting global warming will see global property premiums increase by $183bn (£150bn) a year by 2040.