Financial Daily from THE HINDU group of publications
Friday, Feb 13, 2004
Industry & Economy
Eco damage wreaks havoc on economies: UNDP
Mumbai , Feb. 12
ABUSING the environment is economically damaging. Ask your insurance company if you do not believe us.
This year, global losses from sudden floods, droughts, fall in agricultural productions, heavy rainfall or rise in heat levels is expected to cost close to $50 billion, according to a UN study.
And it will be India, among other developing countries, which will have to bear some of the highest losses, Mr Charles McNeill, Team Manager, Energy and Environment Group, UNDP, told Business Line. He was in India to attend the Delhi Sustainable Development Summit.
Mr McNeill was referring to a study being conducted by global reinsurance major Swiss Re along with the United Nations Development Programme. It predicts that costs of extreme weather may more than triple to a staggering $150 billion by 2010.
The study is exploring links between the ongoing degradation of ecosystems globally and rising number of natural disasters. These disasters in turn translate into increasing numbers of insurance claims.
An interim report on the study will be released in June next year, he said. The final report is expected in 2005.
"When losses because of environmental damage began mounting, the reinsurance industry paid attention first," Mr McNeill told Business Line.
The Swiss Re and other reinsurers were among the first to react because their risk windows extend between the coming 50 and 100 years.
According to UN findings, India's rice, wheat and maize production may fall by 5 per cent to 10 per cent by 2020 while Bangladesh may see a 20 per cent higher risk of flooding. This may also affect India.
Natural disasters affected close to 25.6 crore people worldwide. And 97 per cent of those who died in natural hazards were in developing countries such as India, China, Bangladesh, Pakistan and Brazil.
"We have seen re-emergence of diseases that we believe were eradicated in 1950s. There is a link in such environment and health disasters. Most environmental degradation stems from the production and consumption patterns of the developed countries," Mr McNeill said.
But there are examples of lessons being learnt by the industry.
For instance, a detailed assessment of the impact of Hurricane Mitch, which killed 18,000 people and 2.5 million in the Central America in 1998, revealed that deforestation had led to higher losses in the Honduras.
The nearby Belize islands, on the other hand, suffered least because of forest cover that stopped mudflows and flash floods.
This could change the risk profile for investing in less environmentally aware countries compared to those more attention. Insurance companies can pass on these lessons to other businesses.
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