If the United States were run like a business, its board of directors would fire its financial advisers for failing to disclose the significant and material risks associated with unmitigated climate change.
Managing risk is necessary for individuals, investors, businesses and governments. As individuals, we buy insurance for our homes, vehicles and health because the future is unpredictable. Businesses take similar actions and save, when they can, for the next economic downturn. Investors diversify their portfolios and hedge their bets for the same reason. And for governments, managing risk can mean anything from maintaining a standing army (in case of war) to filling a strategic petroleum reserve (to protect against severe shocks in oil prices).
As businessmen and public servants, we are intimately familiar with the systems used to manage risk. They are central to informed decision-making. But today, the world faces one of the greatest humanitarian and economic challenges of our time: the threat of global climate change. And in this arena, our risk-assessment systems have broken down. This ignorance cannot be allowed to continue.
Government officials, economists, financiers and everyone else in the business community need to ask: How much economic risk do we face from unmitigated climate change? Answering this question would go a long way toward helping us all prepare for the extreme weather and related economic effects that are most likely coming our way.
That’s why the three of us have joined together to lead a new effort designed to do just that. Our Risky Business initiative (www.riskybusiness.org) will look across the U.S. economy and assess the potential impacts of climate change by region and by sector. Our analysis, when complete, will arm decision-makers with the information they need to determine how much climate risk they are comfortable taking on.
The reality is that we don’t yet know everything there is to know about climate change, and we don’t know its full potential impact. That’s exactly why we need to assess the risks. What will changes in temperature and precipitation mean for farmers and livestock producers? How will higher sea levels affect the value of coastal property? What might stronger and more frequent storms mean for the infrastructure that is the bedrock of our national economy?
These are not theoretical questions. We already know that extreme weather events cost a lot of money. In recent years, these costs have added up after such events as Hurricanes Sandy and Katrina; the wildfires and epic floods in Colorado; the die-off of pine trees across the Rocky Mountains; devastating, historic floods across the Midwest; deepening drought in New Mexico, Texas and Oklahoma; record heat waves across Alaska and the Northeast; and the slow but intractable death of the coral reefs in the Gulf of Mexico.
While it is difficult to attribute any single weather event to climate change, world climate scientists agree that climate change makes these types of events both more likely to occur and more catastrophic in scope. Even under the best-case climate scenarios, we are likely to experience more extreme weather, more droughts and heat waves, more destructive storms and floods.
In the wake of Hurricane Sandy, New York City created a comprehensive resilience blueprint that measures climate risk across all major vulnerable areas, from the power grid to hospitals to the coastline. Our nation needs the same blueprint. It is essential that our national exposure to climate risk be understood so all Americans can make informed decisions about the future.
We believe the Risky Business initiative will bring a critical missing piece to national conversations about climate change and help business leaders, elected officials and others make smart, well-informed, financially responsible decisions. Ignoring the potential costs could be catastrophic. That is a risk we cannot afford to take.
Michael Bloomberg, an independent, is mayor of New York. Hank Paulson, a former chairman of Goldman Sachs and Treasury secretary in the George W. Bush administration, is chairman of the Paulson Institute, which promotes sustainable economic growth. Tom Steyer is founder of Farallon Capital Management and co-founder of Next Generation.