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The official blog of BNP Paribas Asset Management

Ulrik Fugmann
2 AUTHORS · Investing
25/03/2022 · 5 min read

Climate change and global security

Climate change is a threat to life on earth through its impact on livelihoods, health and income, and nature as a whole. However, it has become clearer that it can also be a threat multiplier for instability, adding to tensions even in stable regions by exacerbating the social and economic problems highlighted by the pandemic, argue Edward Lees and Ulrik Fugmann of our Environmental Strategies group.    

In a meeting of the United Nations Security Council in February 2021, naturalist David Attenborough called climate change ‘the biggest threat to security that modern humans have ever faced’.

Much of the debate on climate change focuses on the devastating effect of the increase in carbon and greenhouse gas emissions, rising sea levels and temperatures, soil erosion, deforestation, and toxification of nature. All are a major threat to populations and the fight against poverty around the world, leading to a potentially devastating and lasting effect for life on planet Earth.

On cue, the UN Intergovernmental Panel on Climate Change issued a major new climate report this February highlighting an unavoidable increase in risks in the coming years, with the next several tenths of a degree of global warming being critical.

Climate change and national security

Some of the risks revolve around potential security issues that climate change poses today. In September 2006, the US Centre for Naval Analysis (CNA) convened a Military Advisory Board to study the threats posed by climate change and propose ways in which the US could address the consequences of climatic shifts.

After eight months of deliberation, the board outlined four findings

  1. Projected climate change poses a serious threat to national security
  2. Climate change acts as a threat multiplier for instability in some of the most volatile regions
  3. Projected climate change will add to tensions even in stable regions
  4. Climate change, national security, and energy dependence are a related set of global challenges. 

We have already seen a number of conflicts as a direct consequence of climate change and scarcity of resources – and we are likely to see more if climate change remains unaddressed. Indeed, drought in Syria contributed significantly to its descent into war and the subsequent refugee problem.

A meta-analysis of over 60 quantitative studies that examine the link between climate and conflict found that "for each 1 standard deviation change in climate toward warmer temperatures or more extreme rainfall, median estimates indicate that the frequency of interpersonal violence rises 4% and the frequency of intergroup conflict rises 14%.”

It goes on to say that ”Because locations throughout the inhabited world are expected to warm 2σ to 4σ by 2050, amplified rates of human conflict could represent a large and critical impact of anthropogenic climate change.” 

The human tragedy that is unfolding in Ukraine does not relate to the type of conflict described above caused by resource scarcity, but instead to the fourth point highlighted by the CNA, namely the issue of energy dependence.

According to the International Energy Agency, roughly 40% of the EU’s natural gas usage in 2021 was supplied via Russian pipelines, several of which run through Ukraine.

On top of this, food prices are making all-time highs as Ukraine is ‘the breadbasket of Europe’, if not the world. The Black Sea region today is a vital hub of global agricultural production and trade. Together, Russia and Ukraine account for about 29% of global wheat exports, 19% of corn exports and 80% of exports of sunflower oil.

The response – A fast forwarding of renewable energy targets

In early March, the European Commission proposed a bold new ‘REPowerEU’ plan to make Europe independent from Russian fossil fuels well before 2030, starting with gas, in light of Russia's invasion of Ukraine. 

Commission President Ursula von der Leyen said:  “We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter and accelerate the clean energy transition. The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system”. 

A number of European countries are already speeding up their energy transition. Germany, in a rather historic decision, has turbocharged its transition by moving forward its plans to be 100% renewable by 15 years, to 2035 – bringing them in line with the US and the UK.

Berlin wants 80% of power to come from renewables as soon as 2030, helped by onshore wind additions that should hit 10 gigawatts (GW) a year from 2027 through 2035 (versus only 2 GW a year now) and solar installations of 20 GW from 2028  (versus 5 GW a year now).

In addition, the new-installed coalition government intends to dramatically shorten the permitting time for onshore wind. This has been a significant barrier for growth in renewables. New offshore wind additions are due to reach 6GW in 2029, 9GW in 2030 and then continue at 4GW annually from 2031.

A new narrative for the energy transition  

The themes of decarbonising, digitalising and decentralising the global energy system could hardly have more catalysts for acceleration over the coming 5-10 years in particular.

In our view, the energy transition narrative has changed markedly in recent weeks. There is a realisation that what is at stake is far more than ‘environmental challenges’. The world has woken up to the significant and broader risks of how ‘climate security’ can affect geopolitics.

As the world deals with persistently higher inflation, a new element of the discussion is the ability for green energy to help cut energy and power prices. The sun and wind do not charge for the marginal unit of energy; the cost of producing power from solar and wind has gone down dramatically; and efficiency has risen significantly.

In contrast, from 1970 to today, the price of oil has increased roughly thirtyfold. Fossil fuels are more volatile and are a significant driver of economic boom-and-bust cycles as well as inflation, while renewables over time have been disinflationary.

A holistic assessment of the effects of climate change can lead to only one conclusion – more must be done on climate adaptation and mitigation, and it must be done faster. The size of the effort needed requires all-in action by all including investors and other asset owners. Their role includes allocating capital to solutions providers and working as stewards to encourage the broadest action.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). 

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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