Insights

Our take on markets, investments, and the world economy

Asset Management | Special Feature

Climate Risk: Too Hot to Handle

June 2021

Climate change is no more just an environmental concern. It has emerged as the biggest developmental challenge for the planet. The most vulnerable countries will be hit the worst with the economic shocks of climate change in coming decades. Our country ranks amongst the most vulnerable countries to climate risk, hence the decisions and actions to tackle the climate risk taken in India will have systemic consequences, not only for our country, but for the entire planet.

Keeping this in mind, we have identified three material risks, namely, climate change, air pollution and carbon emission, that must be addressed for India to realize its potential and emerge as an economic powerhouse.

Climate Change

The extent of vulnerability of India to climate risk can be gauged by the fact that by the end of 2050, India’s temperature is projected to rise 1.7 to 2 degree Celsius. Extreme heat will significantly lower the outdoor working capacity of India’s labour workforce in the next three decades, putting at risk the country’s economic growth. Globally, 700 million-1.2 billion people will be living in areas with a non-zero chance of lethal heat waves by 2050.

It is estimated that the sea level will increase by 0.5m and these changes would affect millions of people living along the coastline of major cities such as Mumbai, Chennai, Surat etc

Sources: Mckinsey, Climate Central, IndiaSpend 2019


Air pollution

Globally, air pollution has been termed ‘a silent public health emergency’, ‘the new tobacco’. It is an epidemic that is killing seven million people every year. It is affecting the majority of the global population and is even more severe in India. A quarter of India’s population is exposed to pollution levels not seen in any other country. Air pollution has shortened lives by 9.4 years in NCR or Delhi and by 8.6 years in Uttar Pradesh.

Sources: WRI, India Air Quality Index 2018, India Air Quality Index 2019


Carbon Emission

The biggest challenge countries are facing globally is de-linking carbon emission from economic growth i.e their economy is carbon-based – driven by energy from coal, oil, and natural gas. The per capita CO2 emissions remain closely related to a country’s level of economic development, and thus standard of living.

The Intergovernmental Panel on Climate Change (IPCC) states that global carbon emissions must decline by nearly half to 2030 and reach net-zero by 2050 to have at least a 50% chance of limiting warming to 1.5°C. If we fail to do so, the IPCC warns, humanity will face extreme changes to weather patterns and ecosystems, massive economic damage, and unprecedented social and political upheaval.

India, being the third highest emitter of carbon dioxide in the world, needs to play a pivotal role.

Sources: Global Carbon Project, CDIAC, OurworldinData.org

Climate change is an imminent risk. We need to scale up global ambition when it comes to reducing carbon emissions. All stakeholders including the government, industry, regulators, and citizens must work towards a strong, sustained and coordinated action to tackle this existential challenge and pledge to be carbon neutral by 2050.

Authored by: Abhay Laijawala, MD and Fund Manager, Avendus Capital Public Markets Alternate Strategies LLP

Stay updated with the latest on Avendus