Climate-Driven Loan Could Increase By 7% In The Next Three Decades, Study Says

A study reveals that climate change has a cascade effect on farming, resulting in loan defaults caused by climate change rising by up to 7% over the next three decades.

Financial Resilience

The study, which was published in the Proceedings of the National Academy of Sciences, is based on Brazilian climatic and agricultural data.

The projection in the study shows that, while temperatures are rising everywhere, there is a significant difference in what that looks like from place to place, emphasizing the importance of developing diverse types of physical and financial resilience.

For example, parts of northern Brazil are expected to experience more dramatic seasonal swings by 2050, with heavier rainfall in the winter and drier summers, so policymakers should consider the need for water storage by constructing dams and reservoirs, as well as increasing groundwater storage capacity.

Central Brazil, on the other hand, may experience more consistent weather but higher total temperatures, indicating the need for heat-resistant crops.

The researchers utilized a statistical approach that combined historical climatic data from Brazil with information on crop yield, farm revenue, and agricultural loan performance.

They used this information with climate simulations to forecast future weather conditions, their effects on agriculture, and how these changes may influence financial institutions.

"A difficulty in studying climate impacts on agriculture is that there are all sorts of adaptations happening all the time that aren't easily observed, but are really important for understanding vulnerability and how risk is changing," said co-author Jennifer Burney, professor of environmental science at UC San Diego's School of Global Policy and Strategy and Scripps Institution of Oceanography.

Food Security

One of the research's primary goals is to assist resilient food security in the face of climate change, which necessitates an understanding of when minor climate fluctuations can have far-reaching consequences, spilling over regions or into other sectors via trade and banking institutions.

Understanding the systemic risk posed by climate change is especially important for politicians and disaster relief organizations, as climate change has become a major national security issue.

To achieve that goal, the statistical approach described in the study might be implemented globally.

"The technique we developed will help populations identify where they are most vulnerable, how climate change will hurt them the most economically and what institutions they should focus on to build resilience," said study co-author Craig McIntosh, professor of economics at the School of Global Policy and Strategy.

For example, during El Niño years, governments in the Western Pacific region may purchase additional food from the worldwide market to compensate for decreased crop yield.

The statistical approach utilized in the study could assist governments around the world in understanding their unique climate circumstances and determining whether local, regional, or international institutions are best suited to solve them.

The findings could be especially useful in developing the United Nations' loss and damage fund, which is set to be formed in 2022. The fund is intended to help pay developing countries that have contributed the least to the climate problem but have borne the brunt of its disastrous floods, droughts, and sea level rise.