Worsening heatwaves in the summer, a more extreme climate, and yet worsening persistent droughts could spell a huge bill for Spain and Italy, two of the European countries most exposed to the effects of climate change. The Scope Rating agency has given figures on the costs these two Mediterranean countries will have to face by 2050, taking into account the climate scenarios predicted by the Greening the Financial System Network, a network of 83 central banks and supervisors. seeks to promote sustainable finance. While Spain may face losses of 4.6 million, in the case of Italy, this figure reaches 10 billion.. Estimated losses for the European Union as a whole could reach 32.7 billion euros.
These figures represent 8.3% of Spain’s GDP per capita and 5.8% of Italy’s GDP by 2050. The Scope Ratings document states that successive heat waves in Europe, along with changes in precipitation, are already subjecting European regions to severe droughts. This situation is already causing serious damage to economic, human and natural systems.. Spain is one of the European Union countries most exposed to the consequences of water scarcity. “We have seven of the ten most water stressed basins in Europe”specifies Gonzalo Delacámara, researcher and director of the IE University Center for Water and Climate Adaptation. Although Spain is one of the countries most affected by drought, other European countries also experience more intense drought periods each year. A study by Water Risk Filter estimates that by 2050, 15% of the European population will be at high risk of water scarcity in Europe.
The Scope Ratings study points out that drought events are one of the many negative effects of climate change, and therefore gives investors an insight into their economies. stress tests to detect exposure to drought and thus be aware of potential risks in their portfolio.
70% of the losses that drought can cause between 2020 and 20250 will occur in the five largest economies of the European Union.. Among these countries, Germany, France and the Netherlands are the least exposed to drought risk, but Spain and Italy, the largest economies in the southern community, may represent 45% of the total losses. The agency document states that drought may cause additional economic difficulties and financial burdens from debt-financed public spending, which will raise debt-to-GDP ratios in these countries and increase the cost of refinancing in the long run.
Agriculture, the most exposed sector
The Scope Ratings indicate that agriculture is the sector most exposed to drought and could suffer economic losses of 1.8 trillion euros, equivalent to 9.8% of the sector’s income. “EU countries can adapt by investing in improving agricultural techniques to make crops more resilient to water shortages. They can also replace water-intensive crops such as maize with crops that are less dependent on water.. By implementing these compliance strategies, EU countries can compete globally in the agriculture sector, said Hazem Krichene, Senior Director of Scope ESG Research.
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Other economic sectors There are relative drought-related losses ranging from 4 to 7% of the total expected loss in the EU.. In the case of Spain, the regions with the greatest water stress are now Andalusia, Murcia, part of the Valencian Community, and Castilla-La Mancha, along with the Balearic and Canary Islands. “If there is already a water stress problem today, it will definitely be bigger in 20 years. Companies have to take that into account when making long-term investments,” says Charles Kirby, Sustainability partner at EY Spain. .
“The industries are probably avoid positioning in extremely hot areas It’s mainly down to two factors: reduced workforce productivity due to persistent and intense heat, and exposure to the risk of water shortages, said Hazem Krichene, Scope’s senior director of ESG research.