How climate change is affecting your finances

The costs of climate change on the planet and its animal inhabitants are well documented. The costs on the inhabitants of those countries most susceptible to changing weather are also well known.

The longer-term costs to the wellbeing of all life on Earth are alarming to think about and appear to be finally focusing the minds of at least some politicians and business leaders.

In the meantime, climate change has had and continues to have an impact on the finances of people in Britain, despite it often seeming as if we are shielded from the worst effects of a warming planet.

From insurance to taxes, here’s how a warming planet could affect your pocket.

Rising travel insurance costs

Insurance premiums are likely to rise as the risks caused by extreme weather events also grow, not just because of costs to insurers but because travellers will want more extensive protection.

This could happen within the next five years. Analysis carried out by the European Academies’ Science Advisory Council has shown that extreme weather events have become more frequent over the past 36 years, with a significant uptick in floods and other hydrological events in the last five years alone.

Chris Rolland, CEO at specialist medical travel insurance provider AllClear, says: “Climate change may well increase future travel insurance costs, as policies are potentially required to provide more extensive cover.

“For example, with increased extreme weather incidents brought about by the effects of climate change, more people will realise the value of having ‘trip disruption’ cover for natural disasters.

“In general, and with AllClear policies, this is currently purchased as an add-on, but providers may start to build it into basic policies if it becomes a more common requirement.

“Furthermore, the recent trend towards ecotourism, defined as responsible travel to natural areas that conserves the environment, is generally costly and may require cancellation limits to be extended.”

More homes could be lost

There are already coastal properties being lost to the sea as a result of coastal erosion but this is likely to accelerate in the coming decades, with inevitable effects on the housing market and on home insurance.

“Global warming has accelerated sea-level rise and warming in recent years,” says Richard Hayes, co-founder of Mojo Mortgages.

“This drastic change has significantly increased the chance of flooding of coastal communities, as well as contributing to a higher frequency of stormy weather and consequently coastal erosion.

“By 2100, the sea level could rise by up to 80cm in certain coastal areas around the UK – posing a serious threat to the value and potentially, the structural integrity of coastal properties.”

In 2014, the Environment Agency carried out analysis that suggested more than 800 coastal homes would be lost by 2034, while 7,000 properties are likely to be destroyed by the sea over the next century.

The financial impact on consumers could be significant, even if their homes are not affected by events such as flooding and rising sea levels.

Jim Totty, managing director of sustainable private equity specialists Earth Capital, says: “The insurance and reinsurance sector is a good sector to look at when trying to quantify the cost of climate change.

“One such forecast is from the UK government. It forecasts that the annual cost of flood damage to properties may rise from £1.2bn in 2012 to between £2.1bn and £6.2bn by the 2080s. This will feed through to consumers as higher insurance premiums, alongside the distress caused by more frequent flooding of homes.”

Prices could rise

In a world where droughts, unseasonal freezes and extreme storms are more common, we’re likely to see a knock-on effect on food prices.

The National Academy of Sciences report suggests that for every degree Celsius that the global thermostat rises, there will be a 5-15 per cent decrease in overall crop production.

And that’s not in some distant future; disruption to food production is happening right now, although it has not yet caused a significant uptick in prices.

Analysis carried out in an HSBC Global Research paper suggested that heatwaves and droughts across Europe have affected the production and quality of cereals, lifting prices of milling wheat to four-year highs.

In the immediate future, the paper says that food prices would not be significantly affected but it anticipates they will be later on, adding: “As climate impacts accumulate and weather patterns become less predictable, we expect continued agro-commodity price rises and/or volatility.”

Investments could suffer

People who do not actively invest may assume that if the returns on investments fall, it won’t affect them. However, from pensions to property prices, investments play a significant role in the economy.

Business owner Janaya Wilkins, who founded sustainable oceanwear brand SLO active, is concerned that investors are looking to historic data when making decisions, instead of the changing scientific reality.

She says: “With the world population expected to grow to approximately 10 billion by 2050, demand will increase. As the supply goes down, the demand stays the same, if not, increases. Therefore, prices become higher and less people can afford to buy, and companies make less money.

“Therefore, it is critical for long-term economic and financial stability that climate risks be integrated into financial decision-making, as these risks have a direct impact on return on investment.

“It still baffles me that large scale investment decisions are not science-based and are often based on historic trends, rather than future opportunities and threats. Large financial companies have trillions of pounds in assets that will be jeopardised by climate change.

“More intelligent investment strategies need to be made from the top down in order to change behaviour and drive more positive economic opportunities in local communities.”

We may change how we shop

One significant impact on our finances as individuals could be caused by societal pressures changing the way we shop and consume in the face of growing awareness of global warming and plastics pollution.

There may also be changes in how we dispose of waste, potentially spearheaded by government action.

Aldous Hicks, co-founder of ReCircle Recycling, says: “The simplest way our home finances will be affected is how we handle the materials and things we no longer need.

“The simplest principle is to understand that once we have finished using anything, it will be the responsibility of those who have benefited from the thing that will be responsible for the cost of ensuring it is reused or recycled – miners, transporters, manufacturers, wholesalers, retailers and of course, we consumers.”