EU warned of rising risk of systemic financial shocks from continent warming

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The EU is at “higher and higher” risk of systemic financial shocks from climate change, the head of Europe’s environment agency has warned, as research showed the continent should prepare for temperatures at least 3C warmer than pre-industrial times by 2050.

“This is a wake-up call for the financial industry and the insurance industry,” executive director of the European Environment Agency Leena Ylä-Mononen told the Financial Times.

“It’s not that we face a major financial shock tomorrow but it is accumulating,” she said. “If we start talking about major investments in general into our infrastructure or if we make wrong choices in investing in the way we are constructing our society . . . the risks are getting higher and higher.”

Europe is the fastest-warming continent in the world, with temperatures rising at roughly twice the global rate. A long-term global average temperature rise of 1.5C from the pre-industrial era would correlate to 3C across Europe.

The impact of that could be dire, according to an EEA report published on Monday, which warns that without “decisive action”, “hundreds of thousands of people would die from heatwaves, and economic losses from coastal floods alone could exceed €1tn a year”.

Temperatures could rise by more than 7C by 2100, the report said.

Extreme weather risked causing “reduced tax revenues, increased government expenditure, lower credit ratings and increased cost of borrowing”, it added.

In a draft response to the EEA report, seen by the Financial Times, the European Commission said that it planned to set “minimum climate resilience requirements” for all spending under the next EU budget from 2027.

It would also establish a committee to plan strategies for financing adaptation measures.

The commission’s draft report, subject to change before its publication on Tuesday, also warned of “risk of conflicts” between member states over water resources, a drop in productivity because of extreme heat and an increase in diseases such as West Nile virus and dengue fever, until now prevalent mainly in tropical regions.

“Strategic stockpiles” of treatments for these illnesses would be assessed, the draft said.

Europe has already suffered vast damage as a result of extreme floods and wildfires in recent years.

Heatwaves in 2022 caused 70,000 European deaths, the report estimated. Economically, the toll was also high, as Slovenia recorded economic losses equivalent to 16 per cent of its gross domestic product following floods in August last year, while wildfires followed by floods in Greece wiped out 15 per cent of the country’s annual agricultural yield.

The northern hemisphere has recorded its warmest winter, said the EU’s Copernicus Earth observation agency last week.

The global average temperature for February was 1.77C above the pre-industrial average and marked the ninth month in a row of record heat, said the Copernicus Climate Change Service.

The unusual winter heat was particularly marked in central and eastern Europe, the agency noted. Thermometers in parts of eastern Europe hit more than 10C at night and 20C during the day. In southern Romania and northern Bulgaria, some of last month’s temperatures deviated from the norm by more than 14C, the World Meteorological Organization has said.

Ylä-Mononen said that if governments did not act they were at risk of “huge court cases” brought by citizens, with southern European nations most at risk of devastation from extreme weather as well as crop failures.

Six Portuguese teenagers are challenging 31 European countries in the European Court of Human Rights for failing to cut emissions, arguing that the effects of climate change have damaged their quality of life.

Ronan Palmer, head of clean economy at think-tank E3G, said there was a “big message” for EU finance ministers who needed to “think about a plan to keep the economy stable while addressing climate change”. But the EEA report had “underestimated” impacts such as mass migration within Europe, he said.

“There are whole parts of the EU that are just not as liveable for people as they were and they will want to move further north and away from coastlines,” said Palmer. “We are going to have to be ready for people wanting to move.”

Ylä-Mononen said there was “still time to act . . . we definitely don’t call for giving up”.