Climate-induced instability threatens over half of Asian markets
India, Indonesia, Philippines among most vulnerable to cascading climate risks
by Dr Rory Clisby,
As global warming takes greater hold, second-order ‘cascading’ climate risks, such as civil unrest, political instability, food insecurity, mass migration and worsening human rights, will affect Asia more than any other region apart from Africa. Soaring temperatures and more extreme weather events will be the catalyst for these secondary risks, potentially stoking instability in over 50% of countries in the region, with populations, economies, investments, and business operations all in the line of fire.
Data from our Cascading Climate Risk Resilience Model (CCRRM), which assesses 196 countries across 32 structural and dynamic risk issues that define a country’s resilience to these secondary climate threats, shows that many of Asia’s major emerging markets including India, Indonesia, and the Philippines are rated among the most vulnerable globally.
The data shows that the world is split into three near-even groups of insulated, precarious and vulnerable nations. However, in Asia the picture is much starker, where 13 of 24 countries are classified as vulnerable by the CCRRM, meaning they lack the structural strength to offset the major impacts of cascading climate risks.
Many governments in the region are identified as poorly prepared to deal with their high exposure to physical climate risks, which can trigger water shortages, flooding, crop failures, damage to crucial infrastructure, and economic instability. In turn, these impacts could snowball into increased migration and higher food and energy prices, leading to lower productivity, recessions, poor credit ratings, and even political instability, civil unrest, and increased human rights abuses.
Figure 1: Asia is one of the most diverse regions globally for vulnerability to cascading climate risks
Cascading climate risks spell trouble for swathe of Asian emerging markets
To determine the countries facing the greatest danger from cascading climate risks, we drew on our portfolio of risk indices, alongside data from sources including World Bank, IMF and UN, and a statistical method called cluster analysis to create the CCRRM. The model evaluates country performance across 32 structural and dynamic risks – including physical exposure to weather-related events, political stability, economic power, resource security, civil unrest, poverty, human rights, conflict, and infrastructure – which are crucial to economic and societal resilience.
Wealthier nations that possess strong resilience in their economies, institutions and infrastructure, or have lower climate risks to begin with, will be better insulated against cascading climate effects. Asia’s ’insulated’ countries, South Korea, Japan, and Singapore, are highly exposed to physical climate risks but can balance these threats through strong and stable governance, high-quality infrastructure, robust social policies and their ability to provide sufficient food and water to their populations. The economies of these countries are also geared towards high-tech manufacturing and serviced-based industries, which are less sensitive to climate change. Together, these factors provide stronger safeguards against cascading climate risks.
‘Vulnerable’ countries lack many of these protections, according to the CCRRM. Some, like Myanmar and Bangladesh, are already hotspots for climate-driven migration and conflict. Others, including India, Indonesia, and the Philippines, do not have the safeguards needed to buffer their societies from the threat of cascading risks, putting not only their domestic economies at risk, but also threatening vital global supply chains and foreign investments.
India is a case in point: despite having high levels of industrialisation, the country still has a comparatively large agricultural sector in terms of both GDP and employment, making the country, its economy and society extremely sensitive to climate change. Large rural populations with limited access to healthcare and other services are highly exposed to the worst impacts of climate change. More frequent natural disasters such as floods, food shortages, disease outbreaks, and excessive rural-urban migration could have a destabilising impact on the country’s political economy, finances, and overall stability.
Major economies lacking key climate resilience safeguards
The group of Asian countries in the ‘precarious’ cluster includes China, Thailand, Malaysia, Vietnam and Mongolia. Thailand’s improved social risk score has seen it move out of the ‘vulnerable’ cluster in 2022 Q3. Conversely, Sri Lanka currently sits in the ‘precarious’ bucket but is expected to drop into the ‘vulnerable’ group in the next iteration of the CCRRM in January 2023, due to its parlous economic situation and increasing political instability.
While ‘precarious’ countries share some of the safeguards seen in ‘insulated’ countries, these protections are often less robust and significant gaps exist. Asian countries in this cluster are all highly exposed to future climate risks, including natural disasters and growing water stress. However, at present they exhibit diverse risk profiles with distinct vulnerabilities in different areas. Common themes include poor provision of drinking water, low healthcare capacity, high levels of corruption, and poor performance on the CCRRM’s human rights indicators.
These countries do have diverse economies and display buoyant economic growth mixed with high levels of industrialisation. However, their large agricultural sectors and the importance of commodity exports to their economies increases their exposure to cascading climate risks.
Figure 2: Asian countries’ resilience to cascading climate risks undermined by social and political failings
Negative shifts across any of the individual risks measured by the CCRRM could easily see these ‘precarious’ countries tumble into the ‘vulnerable’ cluster, signifying a greater threat of cascading climate risks affecting populations, investments, business operations, and supply chains. China’s economic dominance means that any significant decline in its resilience could have a devastating impact on global markets and supply chains.
Vulnerable nations could threaten regional destabilisation
Cascading climate impacts are also transboundary and can spill over into neighbouring countries. Whether this takes the form of mass migration, threats of conflict over diminishing resources, or food and energy security issues due to disrupted supply chains, the risks to societies, economies, and business would intensify, even within otherwise ‘insulated’ countries.
By incorporating cascading climate risks into risk analysis, companies will be better placed to predict where climate-related instability will occur, enabling them to protect investments and bring in mitigation measures to avoid costly disruption or reputational issues. As our analysis shows, even insulated countries can be impacted, meaning businesses and investors must continue to monitor what is a dynamic and changeable risk environment.