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The High Price of Global Warming

May 2005

STANFORD GRADUATE SCHOOL OF BUSINESS—Business school is not the usual venue for discussing global warming, but Jacques Dubois, chairman of reinsurance giant Swiss Re America Holding Corp., believes that it ought to be.

Environmental catastrophe and economic catastrophe are closely linked, Dubois told Stanford Graduate School of Business students in early May during this year's von Gugelberg Memorial Lecture on the Environment. As a result, dramatic global climate changes are wreaking havoc not only on the environment but on financial institutions as well.

Rather than attack business for the role it has played in global warming, Dubois said it is time for governments and social activists to work jointly with corporations to adopt practices that could start to slow the escalating problem of global climate change.

Dubois delivered an unusually objective discussion of global warming that was short on emotion but full of statistics and historical data showing how an increased incidence of hurricanes, floods and tsunamis in recent years already had cost the insurance industry billions.

He said that Swiss Re America's vast staff of scientists had concluded that many of these environmental catastrophes could be linked to a warming of the Earth's atmosphere, which is expected to continue to increase, likely at an accelerated rate. "We do consider climate change to be one of the most significant emerging risks to our industry," he said.

As a company that provides insurance to other insurance companies, Swiss Re today finds itself in the business of tracking natural disasters as more and more of its payouts go to cover insurance losses from earthquakes, floods, and the like. The company employs 300 scientists, including a handful of climatologists who have traced a pattern of unusual or unprecedented weather events in recent years—from last year's Hurricane Alex, which was the strongest hurricane ever to reach so far north in the United States, to a record 10 cyclones to hit Japan last year, almost double that country's previous record of six.

Increasingly, he said, events such as "100-year floods," named to describe the rarity with which they occur, are showing up every few years, producing large losses for the insurance industry and forcing it to readjust old probability tables.

But it is not just the headline-making weather disasters that are producing such large losses to insurers. Dubois said that more frequent and intense heat waves can be blamed at least in part for the emergence and the resurgence of 30 infectious diseases over the past 30 years, from West Nile virus to the bubonic plague.

"The economic cost of infectious diseases is huge and some diseases are being activated by global warning," he said. Global warming also can lead to deforestation, drought, and forest fires. From there, he said, it is not a stretch to draw a link between climate stresses and political instability and conflict over rights to basic resources like food and water.

On an encouraging note, Dubois cited surveys showing that 80 percent of the chief executives of Global 500 companies had acknowledged the risk of climate change and some 40 percent were actively dealing with it.

But he said much more needs to be done to educate businesses about the magnitude of the problem and the potential loss of life and property it poses. For its part, Swiss Re America has committed to making its own operations greenhouse gas neutral within 10 years, and Dubois said that sort of incremental improvement could be significant if adopted on a large scale.

Broader use of alternative energies is also offering promise. Nuclear energy, long out of vogue, is increasingly gaining recognition as a way to combat the problem of greenhouse gas emissions, and economic incentives—such as trading in emissions credits—are helping encourage businesses to run clean shops, he said.

Still, Dubois insisted that progress could be faster if the discussion over climate change were more unified. "This is not a Democratic or a Republican cause, it is not a strictly blue state or red state issue," he said. "Good deeds alone cannot solve the problem and government can't do it alone. The business community must become more involved in developing better products and solutions."