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Sizing up the climate risk challenge in Asia

A preview of new and comprehensive McKinsey research aims to help Asian leaders assess and combat the effects of climate change
Mekala Krishnan

Leads the McKinsey Global Institute’s research on gender economics, inclusive growth, and economic development

Serves as Asia’s coleader and Japan’s leader for McKinsey Sustainability—the firm’s global client service platform to help all industry sectors achieve net zero emissions by 2050—and leads the Chemicals and Agriculture Practices in Japan

As Asia begins to recover from the worst effects of the coronavirus pandemic, it must not lose sight of another existential risk: climate change.

Our analysis finds that climate risk could be more severe in the Asia-Pacific region than in other parts of the world in the absence of adaptation and mitigation. For example, a substantial proportion of people living in areas with rising risk of lethal heat waves by 2050 are in Asia, capital stock in the region is also at higher risk from riverine flooding than elsewhere, and the share of time spent in drought conditions is projected to increase, based on our estimates.

The effects of the changing climate are already being felt: The 2017 floods in China’s Hunan province affected 7.8 million people and resulted in $3.55 billion in direct economic loss. In Australia, the risk of extreme weather conditions that result in fires as severe as the ones observed there last year has increased by at least 30 percent since 1900.

The effects of climate change, however, will not be felt equally across the Asia-Pacific region. In fact, our research underscores two characteristics of climate risk: that climate risk is spatial (it needs to be understood in the context of a geographically defined area) and that it’s regressive (in other words, the poorest parts of the world will be hit hardest).

In August, we released the first part of an extended research endeavor that aims to answer how Asia will tackle climate change in the coming years. Below we illustrate the scope of climate risk in Asia, both the physical hazards and potential socioeconomic consequences, before highlighting measures and potential opportunities for adaptation and mitigation in a forthcoming report. Our estimates are based on a high-emissions scenario absent adaptation and mitigation, also known as RCP 8.5.

Heat

Under the high-emissions scenario, average temperatures in Asia could increase by more than 2 degrees by 2050 compared with preindustrial levels. These intensifying climate hazards will have a growing socioeconomic impact.

Large cities in parts of India, Bangladesh, and Pakistan, for example, could be among the first places in the world to experience heat waves that exceed the survivability threshold for healthy human beings in the shade. Chronic increases in heat and humidity levels could also impact labor productivity, reducing effective working hours. This could cost Asia up to $4.7 trillion in annual GDP by 2050; that accounts for more than two-thirds of the total annual global GDP impact. Parts of South Asia—including Bangladesh, India, and Pakistan, where such effects will be felt most extremely—could see 7 to 13 percent of GDP at risk in an average year by 2050.

Parts of Asia could experience lethal heat waves with increasing likelihood.
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Precipitation

The risk of extreme precipitation events could increase three- or fourfold by 2050 in some areas including eastern Japan, central and eastern China, parts of South Korea, and Indonesia, according to models from Woods Hole Research Center. While climate change is unlikely to increase the frequency of typhoons in Asia, it could boost their average severity. The likelihood of severe typhoon precipitation—an event which had a 1 percent annual likelihood between 1981 and 2000—is expected in some areas to triple by 2040.

Finally, about $1.2 trillion in capital stock in Asia could be damaged by riverine flooding in a given year by 2050, equivalent to about 75 percent of the global impact.

The likelihood of severe typhoons in Asia could increase.
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Drought

While some regions in Asia are expected to experience a surplus in water supply due to extreme precipitation, others can expect to spend most of the time in drought conditions. The share of a decade spent in a drought condition could grow to more than 80 percent in southwestern Australia by 2050, and some parts of China could spend 40 to 60 percent of a decade in drought.

Drought could become more frequent in some parts of Asia, and less frequent in other parts.
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Fortunately, Asia is well positioned to address these challenges. Infrastructure and urban areas are still being built out in many parts of Asia, which gives the region the chance to build more resilient assets. To maintain its current growth trajectory, Asia must invest $1.7 trillion annually through 2030, according to the Asian Development Bank. Incorporating climate adaptation into projects will make a difference to regional development and resilience. Like all parts of the world, Asia can also contribute to reducing emissions through decarbonization and by furthering the development of low-carbon technology.

In our forthcoming report on climate risk and response in Asia, we will explore these issues further, and highlight measures that Asian policymakers and business leaders could consider to protect lives and livelihoods from physical climate risk across three dimensions: integrating climate risk into business and policy decisions, adopting measures that are effective in adapting to the changing climate, and seeking to mitigate climate risk through decarbonization.

Read more in our report Climate risk and response in Asia: Research preview

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