2026 extreme weather: How can we adapt to a new climate reality?

[00:00:00]Around the globe, extreme heat, floods, and wildfires are turning climate risks into severe economic shocks, shaking food chains and global finance worldwide. Why do climate promises lag behind real action? And do nations spend too much on disaster recovery instead of prevention? And can climate investments balance environmental goals with steady economic growth for a resilient future?

[00:00:25]Join today's [music] dialogue with Lisa Saxs from the Columbia Climate School. W Chong Hua of the Global Climate Academy and Swenja Serinsky from the London School of Economics and Marsh McClennon.

[00:00:43]>> Hello Lisa, thank you for the interview.

[00:00:46]Uh we know this year has witnessed devastating heat waves, you know, floods and destructive wildfires across different countries but often at the same time. So from your perspective, are we witnessing, you know, isolated extreme events or have we entered what men describe as new climate reality? You know, what fundamentally has changed?

[00:01:10]Yeah, I I I don't think that the drivers of climate change have changed, but what happen what's happening is that they're now compounding because the climate impacts are occurring in areas that are already weakened and degraded from long periods of drought or heat and fiscal systems are strained and we haven't properly prepared. So, it's not that the risks themselves are anything other than what we anticipated, but they're now adding on top of each other.

[00:01:38]That's true actually you know we have talked about um extreme weathers climate change but you know what matter is really about what we are doing right and for many years you know climate change was treated primarily as an environmental issue but today of as you said I think you know it is increasingly viewed as a financial and economic uh risk how is that so how has that kind of shift you know changed the way governments businesses and investors uh think about resilience to climate change.

[00:02:11]>> Yeah, it's a great question, but it's also really important to be clear about this. We should understand how climate change and the physical impacts of climate change transmit through an economy. Understanding that is really key to understanding how we should respond. The impacts are those that we've anticipated. ecosystems degraded and water cycles disrupted and heat exceeding what crops and people and infrastructure can tolerate and floods and glacier melts and much of that is irreversible. Coastal lines erosion, islands that are drowning. This is doesn't even we can't even put a cost on it and it's irreversible. We also have in place a number of buffers that prevent those harms from affecting the economy. We do that intentionally.

[00:02:59]irrigation and flood defenses, air conditioning, crop insurance, public health systems. We've put these in place intentionally to absorb the physical shock so that it doesn't land in the economy. And then, by the way, we have additional buffers between the economy and the financial center. So insurance and reinsurance and capital requirements and sovereign reserves and reconstruction those are buffers so that when there is economic harm it doesn't collapse the financial system. So these are intentional buffers. The reason it's important to understand these is because the fact that we're experiencing more and more economic impact and potentially financial impact is because these buffers are becoming worn thin. actually we're wearing out the buffers and they're becoming more and more expensive even as our fiscal space is collapsing.

[00:03:50]But the important thing to understand is the only way to address this is upstream is by stopping the emissions not by resilience. That's important. That's a buffer. But the only way to stop the increasing harms that are transmitting through the economy and causing this collapse is by decarbonizing the global economy. Mhm. Well, you have argued in a recent paper, you know, the importance of distinguishing between planetary, economic and financial climate risks.

[00:04:18]Tell us more on that.

[00:04:19]>> Exactly.

[00:04:20]>> Exactly. This is exactly that point because there has been a sense for the past decade. I would say that if only we can understand the financial risk and convince the financial sector of this mounting risk that the capital markets will align toward a decarbonized world.

[00:04:38]And that is not how the financial markets work. Their their mandates and their instruments that they have are to preserve capital by managing their exposure. And again, just to be clear, their exposure is only the residual effects after all of these buffers that are in place to protect physical shocks from affecting the economy and from preventing economic shocks from affecting the financial sector. So it's not to minimize the importance of understanding financial risk. That is important and we want to preserve capital. We want our financial systems to function. But we should understand that if the financial system manages their financial risk that will not lead to building decarbonized systems. It will lead in fact it might lead them to retreat and to withdraw capital or to price to increase the prices of providing capital to vulnerable areas.

[00:05:33]So that's the importance I'm trying to emphasize that managing risk is important but it's not the same as reducing planetary harm which comes from building decarbonized system. Well, uh, you know, if you look at the the reality, of course, you know, we often I mean, governments around the world probably more more or less similar, uh, you know, they spend a lot more on recovery or rebuilding after, uh, the disasters, uh, but much less, let's say, in the preparedness, you know, uh, enable communities, infrastructure, uh, to make them safer probably before the disaster strikes.

[00:06:07]>> Uh, so there's a kind of like underfunding in terms of prevention. Uh why is it so so difficult to to find?

[00:06:16]>> There's a massive under it's it's a massive distortion by the way because every model shows that the the benefits of a fast transition far outweigh the costs. We're going to be seeing mounting costs from a slow transition. So the economics are clear, but there are a lot of distortions that make it hard to see that. I think with resilience, one of the hardest parts is that it doesn't create a revenue stream. It's about avoiding future losses. And so that is never going to be adequately financed by by capital markets that look for returns. What private assets may do and should do is protect their own assets through resilience, hardening their own assets, investing in their own management of drought effects and and heat. But for the for a society to manage flood risk, to manage co coastal erosion or or reefs, that requires upfront payments for long-term avoided losses. And there's no market for that.

[00:07:19]It really requires good public sector financial management and thinking of different types of instruments that may be able to crowd in additional financing but to provide these as public goods. So that is what makes that harder than the types of industries energy uh transport buildings where there's a return in resilience there's no return it's investing now to avoid future uncertain but now mounting losses >> similarly I would say internationally if you look at developing countries global south [music] you know when there's a disaster strike often you know there's yes there's a there's a there's assistance uh but often comes after the disaster strikes that that's kind of similarity uh one is to change you know so these countries the developing countries they are more vulnerable to climate change uh they will say receive more long-term support to protect to prepare uh to be more uh resistant let's say to to the changes to prepare for next crisis >> developing countries are really really at the brunt of the international financial system right now and it's so important to understand this is not a new challenge but it's really being exacerbated by climate change.

[00:08:33]Developing countries are limited. First of all, they have much less fiscal space than developed country have. So they have limited public budgets. Then they're limited in their ability to borrow. Either they're told don't borrow because they don't want developing countries to accumulate debt or when they do borrow, it's very expensive and short-term. So developing countries have much more limited fiscal space to be able to invest in their own economy and in their own resilience. And then, not surprisingly, but terribly, they're punished for slow transition and for their vulnerability. There was a um a post from the European Central Bank, from the ECB not too long ago that showed that poor countries that transition more slowly and that were more vulnerable play paid even higher borrowing costs. So, they're penalized again for their poverty really. And it's true. All we know how to do is aid. And even that we're not very good at. But we wait till there's a crisis and then we trickle in aid. when we've created this system and the structure that makes it very difficult if not impossible for developing countries to invest in their own economy. That's a distortion. So the answer to that is we need to fix the distortion and enable developing countries to invest in their own productive growth and in their resilience. By the way, just to say this has been recommended every year by the international high level expert group on climate finance ahead of cops the Baku debellum road mapap said that but we don't discuss it actually it's quite absent from the climate finance space and it's critical it's critical for developing countries but it's also critical for the whole world because climate outcomes will be determined by the energy trajectories and how energy systems are built in emerging markets.

[00:10:13]energy system. Can you talk more about that? You know, you mentioned in China, but yes, in China, we are see we're seeing that the the building of this uh like new energy or renewable energy that that's you know heavy investment growing fast. What about globally? What about the trend?

[00:10:33]>> I think we have a lot to learn from the way that China has been transitioning its energy system. China is holding multiple objectives together even when they have trade-offs. So, China is looking to achieve energy security and has done quite well. In fact, they're among the most resilient to the closure of the straight of Hormuz despite importing a lot of oil through the straight of Hormuz uh energy efficiency and decarbonization. And by the way, all while building an incredibly globally competitive dominant industrial manufacturing sector and manufacturing the component parts of energy systems around the world. That requires a coherent planning process. It requires understanding first of all where the potential generation is, where is the demand going to be, where's the transmission. It requires planning.

[00:11:22]China is uniquely good at planning and at understanding systems. The rest of the world is not so good at planning and energy systems require planning increasingly so as we now have flexibility and distributed energy systems and digital optimization. So it requires that we plan. That's the main thing that we don't do. If we can plan and we can look region by region, where's the solar potential, the wind potential, the geothermal, where's the hydropower, what's the demand trajectory, where is it going to be growing, how can we treat these sectors as assets on the grid, then it's financeable, by the way, because the world needs more energy so it will be financable. We can plan for it properly.

[00:12:04]To me, that's the main lesson.

[00:12:07]>> Well, thank you, Lisa. Thank you for speaking to us. [music] Cha, thank you for the interview. Uh, we know this summer has brought unprecedented heat waves in particular the western European countries of course uh together with the floods and other climate related disasters across I would say multiple continents. uh we do see the frequency and intensity of extreme events uh you know like on a par with the past years or even of this worse do you see a new trend a new reality here we are already living living in it actually it's more like a preview of the climate future so this is the harsh reality we are living in already now look around the world actually if you look at the temperature the global temperature remains very high at this moment. We all know uh 2024 uh is the year when global uh average surface temperature rise already existed to 1.5 degrees Celsius which is the the gold target climate targets before the end of the century under the Paris agreement.

[00:13:20]Of course uh the narrative is that so even though for a year or you know a few years actually we would exceed this temperature rising of 1.5 degrees but hopefully somehow uh after taking more aggressive you know actions accelerating transation some hope we hopefully will be able to mitigate the risk and then we'll be back to the track in terms of climate targets climate goals >> and uh we do have this World Meteorological Organization, you know, uh, predicts that El Nino is strengthening and could bring drought to some parts of the Asia-Pacific region and heavier rainfall to other regions.

[00:14:03]So, you know, as chair of the Asia-Pacific Water Forum's governing council, are you concerned with, you know, uh probably water related threats from you alino effects either probably flooding or uh you know pressure on the supply of clean waters?

[00:14:21]>> Absolutely. And Asia-Pacific region uh hosted 60% of global population generates more than 50% or half of global economy. Then if you look at uh you know the disasters every year 80 to 90% uh of the disasters is extreme weather events uh in influencing the region are water related. Uh if you look at economic losses life losses and the number pretty much in you know hundreds of billions of dollars every year. uh that's a huge loss and uh so from Asia-Pacific regional perspective water security is absolutely you know the top agenda water actually is where climate change becomes actually real for people and is also the plan front line actually of climate resilience uh if you look at you know the water water intersects with everything intersects with with food with the energy with the economic activities supply chains you name it. So water is as the central is more like the central nexus of all the other economic social economic activities there. So yes, it's it's very very you know top priority for the region as you mentioned El Nino uh is increasing droughts in the region and so Asia Pacific has already witnessed an emergence of a drought belt uh pretty much running through Southeast Asia, South Asia uh you know the Pacific island nations as well as a part of Australia. Uh so then if you look at glacias melting uh in our region and that's you know we have Himalaya and Tibeta plateau which is the head water for some of the largest rivers you know in the world literally and affecting about two billion people's livelihoods there and short term uh they accelerate the melting of the glacias there definitely we we have more water uh so we need to deal with actually dry you know flooding things like that but if you look mid-term, longer term, particular for dry seasons, we know for sure uh we're going to face very devastating water scarcity and that's going to be even devastating for uh the economic water security for the region.

[00:16:39]So and it requires not only national government but also among different countries actually we need to strengthen cooperation and trying to figure out how to enhance invest in longer term in infrastructure and enhance our climate resilience.

[00:16:56]>> And you know related to that I also want you to take a look and comment on uh the recent action plan published by the Chinese side. you know the 15th five-year plan uh is about the decarbonization uh you know uh peaking in 2030. So China is going to uh reduce the decarbonization emission uh per unit of GDP by 17% and also increase the non fossil fuel consumption uh to 25% of its energy mix. What does that mean? So China is uh like on the you know on time to meet its targets as promised. So I mean at least in China of course China is also a very large contributor to to the emission here. Uh China is making progress and and and of course is targeting uh the goal uh in a steady way.

[00:17:52]>> Uh let me put things in perspective. I think the biggest challenge we're talking about here today globally actually is this increasing synchronization of extreme weather events and across regions meaning at the same time and simultaneously we have to deal with all those devastating disasters and response to those disasters as well. So that's a sort of given reality. Now on the action side uh we talk about mitigation, adaptation, resilience. We all know actually mitigation uh is about you know is about addressing future climate risks. It's about protecting future generations there. So that's why China continues to be on this track to deliver this decarbonization uh agenda and uh of course we as you mentioned we already said and uh you know we we are literally entering this peaking uh emissions before 2030 period of time and in the meantime in order to deliver all those targets actually we have uh a multiple sort of uh different agendas you know targets goals targets that including energy efficiency including a transition away from fossil fuels. Uh, of course including uh, you know, uh, alternative energy, clean energy transition there. But in the meantime, the country has to invest, you know, has to invest in adaptation there as well because adaptation is about saving lives today, right? And reducing the cost today. But very importantly now the word shifted towards resilience.

[00:19:27]Resilience combines both mitigation adaptation that's reflected actually in the 15 five-year plan. So if you look at even though decarbonization is the leading national strategy to pull the system change but if you look deeper into the plan landscape actually it's about mitigation. It's about adaptation but very importantly actually it's also about resilience investing in resilience. If you look at the climate, you know, risk, energy security, food security, digital technologies, you know, ecological, you know, restoration, sustainable infrastructure, they all are embedded in the 15 to fiveyear plan. So, at the end of the day, it's not just about decarbonization, reducing emissions. It is about how we grow our economy differently. Make sure it is a climate resilient economic agenda really as the national agenda leading up to a sustainable future.

[00:20:24]>> All right. Thank you, Changa. Thank you for your time and insights.

[00:20:35]Professor Saminski, I mean, you have been at the forefront of discussions on Europe's recent record-breaking heat waves. You noted that, you know, current conditions are quote consistent with what climate science has been projecting for decades. End quote. Tell us more on that.

[00:20:55]>> Well, thanks for inviting me. Um well, climate risk, including heat, floods, drought, wildfire, are no longer just a weather story. It's a stress test, I think, for our infrastructure, for our economy, and also for our workforce. And I think not just for Europe, it's also globally. We see this um through events such as the heat wave, such as floods, such as wildfires. I think the key point is the biggest vulnerability is often our underpreparedness.

[00:21:27]We have outdated building standards. We have poor data that often doesn't capture these new trends, these new changes. And then we also have slow investment in resilience. So we are not really building a system that's fit for our current and our future climate. And that is a big concern. You also mentioned about this uh underinvestment in preparedness. Uh why there's such a lack of preparedness? Is it about a lack of awareness? Is about a lack of funding?

[00:22:03]Well, it's all of that. I think generally prevention is always better, you know, than than looking at at, you know, the damages and having to deal with the damages afterwards.

[00:22:16]But we are inherently society but also businesses and us individuals we are inherently reactive and it might be that we do not have the right information. We might think it doesn't affect us or we might see it as a long-term issue or someone else will deal with it. There are lots of reasons why these issues are seen as, you know, something that maybe isn't so important right now. And I think when we experience situations such as the heat wave now we realize you know we have to stop treating resilience as a nice to have and we really have to treat it as a core investment because one thing is quite clear the cost of inaction is actually far higher than the cost of preparedness. So we need to embed this into our investment models and build a strong business case for this.

[00:23:14]>> Mhm. What about the green uh transition uh in the European continent? Um you know we know that because of the state of Hamus you know conflicts the energy prices is not stable is not that low. Um do you see there's in disruption of that kind of trans transition?

[00:23:34]Well, I think what this has foremost brought to to our attention is that our dependency on fossil fuels comes with a huge risk and with huge costs. Um and so the whole transition is a big upside and actually will make energy security cheaper and more reliable. So I think that is the the key lesson learned there. But obviously any disruption to the global system to the global supply chains has implications for all sectors and for all supply chains. So again it it reinforces this advanced planning and it is difficult um at the moment to navigate all these uncertainties >> um and climate change sort of amplifies that. That's why it is so important to really start considering resilience not something that you can do after an event but you have to be prepared you have to be flexible and vigilant and that's kind of the mindset that resilience requires >> right um so professor you serve as a managing director at the global risk and insurance advisory company Marsh uh you have warned that um you know some weather related risks are becoming too costly to ensure. So are we approaching a point where houses, businesses probably uh you know in some areas will no longer be able to afford say insurance because of the changes here and what can be done to prevent that from happening.

[00:25:15]Yes, I think the key point is to understand that insurance is a signal as well as a product. So when risks such as these climate risk become harder to ensure, it's usually telling us that the resilience, our approach to managing risk has not kept pace. So the real challenge is not that insurance disappears overnight, but it is that risk become more expensive. the premium increase, it's actually harder for companies to ensure and insurers become more selective and we see that already in in some parts of the world. Um because the key and we need to understand that insurance only works when risks are manageable and also measurable and climate change makes that actually quite hard and and adds the challenge for the insurance sector too.

[00:26:07]And I think the answer to that is is not just, you know, better data, more innovative approaches to insurance. It's also less risk through more resilient effort and more adaptation because the more resilient our homes, businesses, and infrastructure are, the more available and affordable insurance remains. And I think at the same time, working here at Marsh, we there is good innovation. There are new solutions such as parametric insurance that also help areas like agriculture, like business interruption, like health to really sort of innovate. But the key point is we really have to address the underlying risk. Only then is insurance actually um you know an an available tool if you like. Mhm. Uh on that point resilience uh isn't that or is that a work uh not only probably the individual homeowners like but also the the work of the government?

[00:27:16]>> Yes. I mean I think that resilience is is something that that we we as society need to address. So there are things that we can do as individuals. Mhm.

[00:27:27]>> There are things that government will have to deal with. So, you know, we call them often the sort of system level things where government will have to make sure that people can continue to to live their lives in safety. So, there's a responsibility here for governments.

[00:27:46]At the same time, there's also a responsibility, I think, for businesses to make sure that their own assets, their supply chains are resilient. Um, and I think at the core of all of that is, you know, we are usually more used to pay for damages after an event and we are not very good at funding prevention and I think that so that's really getting harder and harder that sort of mindset with climate change. So that needs to switch and I think having more visibility, better data, but also access to, you know, to tools, to different ways of building, to improving your buildings, to switching the way we manage supply chains. There are lots of technological solutions also to this. And I think the more we actually see these as you know sort of investments that help us um to actually ensure that we can continue running our businesses that we can continue living in our homes you know the more that becomes part of our mindset then I think you know that sort of approach to to resilience adaptation becomes a reality.

[00:29:00]>> Yeah a change of mindset. Thank you professor. Thank you for your time and insights.