Climate change is no longer a distant threat; its effects are increasingly evident in our weather patterns, with heatwaves, floods, and unseasonal weather becoming more frequent. While we often associate climate change with its impact on vulnerable communities and agricultural practices, it’s important to recognize that urban areas and financial sectors are not immune to its effects.
Rising Sea Levels and Sinking Cities
One of the lesser-discussed aspects of climate change is the combination of rising sea levels and land subsidence, particularly affecting coastal cities. This phenomenon poses a significant threat to coastal cities like Mumbai, where the mean sea level is already at 2.51m, with projections indicating a rise to at least 3m by 2100. Factors such as land subsidence, sinking at a rate of 2mm per year, further exacerbate the risk, potentially leading to more intense flooding and infrastructure damage.
According to the IPCC, global sea levels could rise by at least 1m by 2100 due to current carbon emissions levels. In Mumbai, this would mean high tides reaching up to 6m, significantly impacting roads and housing infrastructure. With the city sinking at a rate of 2mm per year, the combined effect of sea-level rise and land subsidence raises questions about the extent of damage, its timeline, and which areas will be most affected.
Implications for the Financial Sector
The financial sector, particularly banks, faces substantial risks due to their exposure to coastal cities. Banks with significant credit portfolios in these areas could see borrowers’ ability to repay affected, leading to undercapitalization. The housing market is also at risk, with potential corrections in house prices as climate risks are factored into property valuations. The insurance industry is not immune either, facing challenges in prudential regulation and systemic risk management.
Addressing Climate Risks in the Financial Sector
Despite the evident risks, a significant portion of banks, both public and private, are yet to fully analyze the materiality of climate-related risks. The RBI has taken some steps towards addressing this issue, such as releasing a draft disclosure framework on climate-related financial risks. However, there is a need for greater awareness and action within the financial sector to integrate climate risks into their risk management frameworks.
Climate change is a global challenge that affects not only vulnerable communities and farmers but also urban areas and financial institutions. Understanding and mitigating the risks posed by rising sea levels and sinking cities is crucial for the resilience of coastal cities like Mumbai and the stability of the financial sector. Collaborative efforts and proactive measures are essential to adapt to these changes and build a sustainable future for all.