With disputes over scarce resources intensifying, we look at the geopolitical and investment implications.
By hindering the provision of fresh water, food and electricity, climate change is starting to undermine livelihoods and strain government finances, causing growing tensions within and between countries, especially where it intersects with rapid population growth.
According to the UN, 3.2 billion people live in agricultural areas with high, or very high, water shortages. Of them, 1.2 billion live in severely water-constrained agricultural areas.1 Disputes over access to fresh water are becoming increasingly common.
Meanwhile, rising temperatures and drought, combined with overpopulation, over-farming and deforestation, are leading to an alarming rise in desertification. The UN estimates around 30 million acres of arable land across the globe are turned into desert every year.2
Rich nations beware
While poorer nations are vulnerable, richer countries should not consider this someone else’s problem. For a start, instability could prove a breeding ground for terrorist groups that aspire to damage Western interests, as seen in the Sahel with the rise of al-Qaeda in the Islamic Maghreb and Al Murabitun. That not only adds to the risk of further terrorist attacks on the West, but will inevitably suck western countries into conflict zones.
The worsening security situation is leading to soaring migration. According to the Institute for Economics and Peace, 1.2 billion people in 31 countries that are not sufficiently resilient to withstand ecological threats are set to be displaced by 2050.3 It seems inevitable many will find their way to the borders of richer nations.4
These issues are starting to impact richer nations directly. For instance, an acute shortage of water in southern Europe and southwestern US states means some countries are facing food insecurity problems.
The European Environmental Agency says droughts and water scarcity are putting cultivation in Europe under pressure.5 Similarly, the US Congress warned in 2018 that rising temperatures, extreme heat, drought, wildfires and heavy downpours will increasingly disrupt US agricultural output.
“While countries’ exposure to these events is often outside their control, by preparing well they can limit the consequences. Turkey had no functioning national fleet of firefighting aircraft, contributing to record damages from this year’s fires,” says Thomas Dillon, senior environmental, social and governance (ESG) macro analyst at Aviva Investors.
Julie Zhuang, global equities portfolio manager at Aviva Investors, is assessing companies helping nations adapt to water scarcity.
“It makes sense to invest in companies that help the world adapt to the consequences of global warming,” she says.
Rising sea levels
Arguably climate change’s gravest threat comes from rising sea levels. The global mean sea level has risen about eight to nine inches (21–24 cm) since 1880, with about a third of that coming in the last two and a half decades.
Figure 1: Sea level since 1880 (in mm)6
Source: Climate.gov, January 25, 2021
Rising sea levels are putting economic pressure on countries in coastal areas of the Indian Ocean, notably Bangladesh and Myanmar, while large tracts of their agricultural land are in low-lying areas heavily exposed to rising sea levels.
For several small island states, sea-level rise could jeopardise their very survival
For several small island states, sea-level rise could jeopardise their survival, with far-reaching implications. The US, for instance, has several important military installations in the Western Pacific.
It is not just foreign military bases that are vulnerable. In June 2019, the US military said 46 of its domestic bases were ‘particularly threatened’ by the effects of climate change.7
As polar regions warm, ice is melting. In the Arctic, that is making the region’s vast mineral wealth more readily accessible, potentially putting the eight Arctic nations, including the US, Russia and China, on a collision course.
Control of shipping routes could bring significant advantages to countries and companies looking for a competitive edge, prompting one former NATO commander to warn global leaders against proceeding “down the icy slope towards a zone of competition, or worse a zone of conflict".8
Implications for instability
Solutions to climate change are also not without risks. Should the world successfully wean itself of fossil fuels, that could have dire economic implications for Russia, Saudi Arabia and other petrostates in the Middle East and elsewhere. Social unrest could have implications for regional and global stability.
Climate change looks set to affect international security in myriad ways over the coming years
Whether from increased migration and local conflicts, as in the dispute over the building of the GERD, or from changing patterns of stability and instability in great-power relations, climate change looks set to affect international security in myriad ways over the coming years. Investors should take note.