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How climate change challenges and solutions are impacting the geopolitical risk landscape

By Alison Anglin | June 5, 2024

Why might climate change alter your political violence exposures and how will the green energy transition disrupt fundamental elements of the geopolitical order, also impacting your organization?
Climate|Credit and Political Risk|Environmental Risks|Risk and Analytics
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While the relationship between climate change and political violence risk may not be one of direct causation, evidence indicates climate change, when compounded with vulnerabilities of weak states, exacerbates political instability.

According to a 2020 report by the International Committee of the Red Cross (ICRC), more than half of the 20 countries considered most vulnerable to climate change experienced armed conflicts, a pattern we see continuing today. Below, we explore the relationship between climate change and geopolitical risk, specifically:

How climate change destabilizes human migration

Climate change aggravates political tumult by upending internal and cross-border migration patterns. Central America, which in recent years has been decimated by several severe weather events, provides many examples.

Hurricanes Eta and Iota were sudden-onset climate disasters that directly provoked abrupt migration waves. Mass movement has also been triggered by slow-onset climate crises – deforestation, sea-level rise, desertification, and extreme heat – which cumulatively disrupt livelihoods and gradually lead to food insecurity.

These slow and fast disaster types have recently been demonstrably linked to Central American migrant flows. One study by the Council on Foreign Relations identified a correlation between decreases in rainfall in Honduras and increased apprehensions at the U.S. border. The same study also indicated that among Guatemalans deported in 2021, there was a marked increase in repatriated persons, specifically from the two regions of the country most affected by the 2020 hurricane season.

As environmental degradation continues, populations will also migrate internally to urban areas in search of economic alternatives, particularly when those populations are poorer. This accelerates uncontrolled urbanization, which can lead to increased violence, organized crime and social unrest.

As of September 2022, nearly six of every ten Central Americans lived in a city. By 2050, the Council on Foreign Relation’s report suggests the region’s urban population will double. The report also finds many internal migrants live in urban slums, with around 40% of all city residents in Honduras and Nicaragua residing in such informal housing settlements.

How climate crises empower violent non-state actors (VNSAs)

A vast network of criminal organizations is capitalizing on government ineffectiveness and facilitating the flow of migrants, fueling predatory violence. This is one way in which mass migration, exacerbated by environmental degradation, emboldens violent non-state actors, or “VNSAs”. The opportunities for VNSAs generated by climate change abound.

Food, water, and energy crises undermine state capacity and legitimacy, creating power vacuums for VNSAs to fill. Recent history provides several examples of how a state’s failure to deliver basic services creates opportunity for VNSAs. In Syria in the late 2000s, drought led to food insecurity, which paved the way for the protests that triggered the Syrian civil war, according to a 2022 report by the Carnegie Endowment for International Peace.

Another example is the Sahel, which stretches across Africa below the Sahara Desert and encompasses part or all of 15 different countries. The Sahel is expected to exhibit temperature increases 1.5 times the global average and is especially vulnerable to land degradation and desertification, according to a World Bank Report. The dire impact of this is compounded by the fact that, according to the ICRC,  80% of the Sahel’s population relies on agriculture to survive.

Extreme weather events, warming and desertification have disrupted agrarian and pastoral livelihoods, leaving vulnerable populations in an insecure situation readily exploitable by VNSAs. These VNSAs then establish alternative local governance systems, positioning themselves as defenders of local communities against banditry, again evidenced by the World Bank report.

These dire circumstances hinder communities’ economic prospects, making them vulnerable to recruitment by violent extremist groups such as Boko Haram, as shown by a Carnegie Endowment report. This dynamic reflects a broader UN finding that economic opportunity, not religious ideology, is now the primary reason people join extremist groups across Africa.

Politically disruptive side-effects of the energy transition

Not only do the harmful impacts of climate change threaten geopolitical stability, but the energy transition itself yields new political risks. For example, oil rich nations (many of which are considered relatively politically stable) that fail to diversify at pace could face risk of destabilization.

In fact, political legitimacy challenges tend to be especially pronounced in authoritarian, oligopolistic states, where the social contract rests upon citizens foregoing democratic rights in exchange for basic security and better living standards.

A failure to diversify away from oil could force these states to make hard economic policy decisions that imperil subsidies and living standards. Alternative stopgaps to a smooth transition, such as drawing down foreign exchange reserves, or devaluing currency, could rebalance imports and exports but would sharply degrade living standards, thus imperiling these social contracts, suggests a 2021 report by Verisk Maplecroft.

Such was the case in Algeria, where 2019 street demonstrations forced the resignation of the country’s leader, Abdelaziz Bouteflika. In this case, protesters’ grievances were partially related to oil, which funded social benefits that buoyed youth employment until prices crashed, as indicated by Atlantic Council research.

If we use recent years as a guide, the outlook for petrostates’ transition capability raises concern: in the period between the 2014 oil price crash and the COVID-19 pandemic (around 2021), most oil-producing countries failed to meaningfully diversify. Some even trended backwards, according to the Verisk Maplecroft report. Even amongst the paucity of diversification success stories, almost none had reduced oil dependence by more than 5%.

As commodity demands diverge from oil, we might expect the focus to pivot to countries discovering large deposits of minerals newly integral to the energy transition. In some cases, these will be the same territories, and in others there will be a shift.

Critical mineral extraction is unevenly distributed across the world and often concentrated in only a handful of countries. According to the International Energy Agency, Indonesia accounts for nearly half of global nickel extraction, Chile accounts for almost a quarter of global copper mining and The Democratic Republic of Congo accounts for more than 70% of cobalt extraction. Processing is also lopsided. According to Eurasia Group’s 2024 Top Risks Report, between 60% and 90% of most critical minerals are processed and refined in China.

Minerals like lithium and cobalt play strategic roles in energy storage, wind turbines and electric vehicles. The World Bank has projected demand for lithium and cobalt to increase by roughly 500% by 2050.

Mining natural resources do, on the one hand, have the potential to generate employment and trade. On the other hand, resource wealth can contribute to political violence. According to the United Nations Environment Programme (UNEP), more than 40% of internal conflicts from 1950 to 2009 were connected to the exploitation of natural resources.

Recently, Nigeria discovered huge reserves of lithium. The country was already known to be rich in a multitude of resources including petroleum, natural gas, and iron ore. Yet this resource wealth has not led to prosperity. Rather, Nigeria is perhaps a model example of ‘resource curse’ where, despite wealth in natural resources, a country remains poor, often with enduring ethnic fractionalization and conflict. Throughout Nigeria’s history, there have been several violent conflicts over natural resources. Resource wealth can incite disputes between a variety of parties: inter-community disputes over control of resources, conflicts between exploration companies and communities and violence by organized crime groups aiming to control resource rich areas, as evidenced by LSE research.

India provides another example of adverse side effects of resource discoveries. In February 2024, India announced 5.9-million-ton lithium discovery in Jammu and Kashmir, making India the seventh largest resource of lithium globally, reports the Peterson Institute for International Economics (PIIE).

The lithium was found roughly 30 miles from the Line of Control separating India from Pakistan. Jammu and Kashmir is India’s most politically volatile region. While Kashmir is predominantly Muslim, the lithium deposits are in Jammu, which is half Muslim and half Hindu. The Hindu population accuses the Muslims of driving them out of the area and waging terrorist attacks (with both covert and overt support from Pakistan). At the same time, according to PIIE’s report, Prime Minister Modi’s government has been accused of waging an anti-Muslim campaign of violence in the region. The discovery of politically sensitive, valuable minerals in this already volatile territory, therefore, could create scores of additional risks, igniting what is already a political tinderbox.

While geopolitical risk is determined by intersecting factors, climate change is clearly a significant element, with impacts that will continue to evolve. Not only climate change, but also the energy transition itself, pose new, sometimes unanticipated, political violence concerns to organizations. Organizations would be well-advised to understand how climate change could impact them - not just from a physical and operational perspective, but also via less obvious knock-on effects.

Innovation and solutions within insurance

Given the limitations of preventative measures organizations can take to mitigate this systemic risk, the insurance market has developed risk transfer solutions to these concerns.

Considering climate change’s widespread impacts, organizations can explore global political violence programs, rather than considering risk on an adversely selective basis. A global standalone policy can offer comprehensive political violence coverage, avoiding potential gaps within the widely varying terms and conditions of local property insurers and country-by-country terrorism pools.

Furthermore, as the energy transition continues to spur new geopolitical risks, a comprehensive political violence program would cover organizations for regions with unforeseen, burgeoning hazards.

Organizations should consider their exposure to civil unrest risk. Resource scarcity, environmental degradation and resultant population displacement can all heighten the risk of disgruntled communities and ensuing civil unrest. This risk can be addressed by Strikes Riots and Civil Commotion (SRCC) coverage, provided either by the property market or the standalone political violence market.

Property insurance policies have historically been silent on civil unrest coverage, due to being perceived as a negligible risk. In the current environment, however, property insurance markets are scrutinizing their civil unrest exposure and excluding coverage, resulting in an uptick of organizations seeking this coverage via the political violence market.

As resource nationalism proliferates, and as the green energy transition recalibrates the distribution of resource-rich nations, companies with globally integrated supply chains will face new challenges. One relevant risk transfer solution is trade disruption insurance, which can indemnify organizations for supply chain delays caused by several named political risk perils, including license cancelation, expropriation and political violence.

To discover a smarter way to understand your climate-related political risk exposures, get in touch.

Author

Associate Director - Terrorism and Political Violence, Crisis Management
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James Borrie
Head of Terrorism & Political Violence, GB

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