How Natural Disasters Affect Global Economic Stability

Long-term Economic Consequences

Natural disasters can lead to long-term economic consequences by creating systemic financial risks, impairing assets, and necessitating strategic adjustments. These events can destabilize industries, amplify global risks, and force companies to revise investment plans and reduce expenses to maintain financial resilience.

"These investments contribute to climate change, create systemic portfolio risk in our poor long term investments, particularly for younger beneficiaries who retirement benefits are more likely to be harmed due to climate related financial losses." --- (GOOG, AGM, 2024/06/07)

"By way of example, the extraordinary collapse in oil demand and oil prices, during which oil traded at an all-time low of negative $37 per barrel in April 2020 – driven by the COVID-19 pandemic and compounded by the predatory practices of OPEC, Russia and other producing nations, which flooded the market with oil – posed a direct threat to the stability and competitiveness of the U.S. energy industry and consequently to the U.S.'s long-term energy and national security." --- (XOM, press release, 2024/05/02)

"So, if you talk about, like, a normal recession with visibility on the cycle, would we change our long-term strategic investment plans, which are always built up from a financial modeling perspective, assuming resilience through the cycle?" --- (JPM, earning call, 2024/Q1)

"In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks." --- (AMZN, sec filing, 2024/Q1)

"sustained lower commodity prices could result in the impairment or write-off of specific assets in future periods and cause the company to adjust operating expenses, including employee reductions, and capital expenditures, along with other measures intended to improve financial performance." --- (CVX, sec filing, 2024/Q1)

Sector-specific Impacts

Natural disasters significantly impact various sectors. In the energy sector, heavy industries require carbon capture and storage to manage emissions (XOM). Supply chain resiliency is crucial to mitigate inflation impacts (CVX). The financial sector faces stress in office portfolios due to strained market fundamentals (JPM) and emphasizes improving environmental practices to minimize shareholder risk (JPM).

"The harder to carbonize sectors of the economy account for 80% of the world's energy related emissions. And while wind and solar have an important role to play, they are simply not sufficient. Heavy industries need carbon capture and storage." --- (XOM, event transcript, 2024/05/29)

"Supply Chain and Inflation Impacts The company is actively managing its contracting, procurement, and supply chain activities to effectively manage costs and facilitate supply chain resiliency and continuity in support of the company’s operational goals." --- (CVX, sec filing, 2024/Q1)

"In addition, we are closely watching our office portfolio as the sector is under stress and clearly impacted by higher rates and strained market fundamentals." --- (JPM, event transcript, 2024/05/20)

"Can you say more about the impact of all the different government and policy initiatives and pressures going on around the world." --- (XOM, event transcript, 2024/05/29)

"What steps are being taken to ensure external clients are also improving environmental practices and with a measurable reduction in climate impacts to minimize shareholder risk." --- (JPM, event transcript, 2024/05/21)

Insurance and Financial Market Effects

Natural disasters complicate insurance operations, affecting financial markets and economic stability. AIG highlights adverse impacts on business operations, while SwissRE's study warns of significant economic losses due to climate change. Morgan Stanley notes market risk, and Allstate details the complexities of reserving for hurricane losses. Legislative efforts in Florida aim to stabilize the insurance market.

"See Part I, Item 1A. Risk Factors in the 2023 Annual Report on how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations." --- (AIG, sec filing, 2024/Q1)

"A 2021 study by insurer SwissRE found that the world stands to lose close to 10% of total economic value by mid century if climate change stays on the currently anticipated trajectory and the Paris Agreement and 2,050 net zero emissions targets are not met. Thus, it is in diversified investors' interest to take steps to minimize damaging externalities that affects the market and economy as a whole, such as greenhouse gas emissions." --- (GS, event transcript, 2024/04/24)

"Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline." --- (MS, press release, 2024/06/17)

"Reserving for hurricane losses is complicated by the inability of insureds to promptly report losses, limitations placed on claims adjusting staff affecting their ability to inspect losses, determining whether losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or specifically excluded coverage caused by flood, exposure to mold damage, and the effects of numerous other considerations, including the timing of a catastrophe in relation to other events, such as at or near the end of a financial reporting period, which can affect the availability of information needed to estimate reserves for that reporting period." --- (ALL, sec filing, 2024/Q1)

"The Florida market that legislators are trying to improve it. They have passed law that is bringing down the amount of fraud that takes place in Florida, and I hope Florida will be fairly buoyant insurance market because at the end of the day, they do believe in the free market more than some of the other states that have insurance crisis like California and New York." --- (BRK.B, event transcript, 2024/05/04)

Government Responses and Policies

Government policies are crucial in mitigating the effects of natural disasters. JPMorgan Chase highlights the Net Zero Asset Managers' commitment to voting policies aligned with limiting global warming. ExxonMobil emphasizes achieving net-zero emissions with government support. Amazon notes the financial risks from government-enforced waste management policies, underscoring the significant impact of regulatory measures.

"to limit warming to 1.5 degrees Celsius. We understand that firms participating in such initiatives are independent fiduciaries responsible for their own voting decisions, and they're not required to vote or engage in a specific way. However, the Net Zero Asset Managers' commitment asks participants to implement a voting policy consistent with the goal of net zero emissions by 2050, in line with global efforts to limit warming to 1.5 degrees." --- (JPM, event transcript, 2024/05/21)

"With advancements in technology and the support of clear and consistent government policies, ExxonMobil aims to achieve net-zero Scope 1 and 2 greenhouse gas emissions from its operated assets by 2050." --- (XOM, press release, 2024/04/12)

"The growing plastic pollution crisis poses increasing risks to Amazon. Corporations could face an annual cumulative financial risk of $100,000,000,000 should governments require them to cover the waste management costs of the packaging they produce, a policy that is increasingly being enacted around the world." --- (AMZN, event transcript, 2024/05/22)

International Aid and Support

International aid and support in response to natural disasters have been robust, with UnitedHealth Group providing over $6.5 billion in interest-free loans and connecting seniors to essential resources. Pfizer, in collaboration with the U.S. Government, has offered 1 billion vaccine doses free to low-income countries.

"To support care providers, we accelerated funding and provided interest-free loans of approximately $3.9 billion through March 31, 2024, which has increased to over $6.5 billion through April 30, 2024." --- (UNH, sec filing, 2024/Q1)

"And for the low income countries, we did an agreement with the U. S. Government that we offer 1,000,000,000 doses completely free through the sponsoring of the U. S.Government, completely free." --- (PFE, event transcript, 2024/04/25)

"I'm immensely grateful for our colleagues who continue to work tirelessly day and night to restore services, free up funds for providers, and protect the broader health system." --- (UNH, earning call, 2024/Q1)

"They connected more than 500,000 seniors to essential resources to help them with unaddressed needs such as food insecurity, medication affordability, transportation, and financial support." --- (UNH, earning call, 2024/Q2)

Impact on Employment and Labor Markets

Natural disasters significantly disrupt employment and labor markets by causing employee turnover, absenteeism, and reduced productivity (TSLA). They exacerbate labor shortages and create uncertainties in manufacturing operations (TSLA). Companies must manage these risks to maintain stability (GM), and platforms like LinkedIn become essential for navigating labor market changes (MSFT). Vulnerable groups, particularly workers of color and female workers, face heightened psychosocial risks (AMZN).

"They can result in substantial costs including employee turnover, increased absenteeism and reduced productivity as well as legal costs, all of which can impact shareholders' investments in the company." --- (TSLA, AGM, 2024/06/13)

"And we had been doing that on a as we started to make the investments in EV, but as I started in this role, we had been doing that on a regular basis With COVID, with the semiconductor crisis, with the supply base instabilities and then with the labor negotiations, we went through a period where we had to extinguish that risk to know the that we were that we maintain and we were able to respond to what the business needed." --- (GM, conference, 2024/05/30)

"Further, psychosocial risks are more pervasive in jobs and industries commonly employing workers of color and female workers.In addition to examining the impact of workplace factors on MSDs, the report also outlines potential solutions to address inequities and risks based on the hierarchy of controls, including:" --- (AMZN, press release, 2024/06/10)

"So anytime there's movement in the labor market, LinkedIn is the solution of choice for all these companies." --- (MSFT, conference, 2024/06/06)

"These plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by new product and manufacturing technologies we introduce, the number of concurrent international projects, any industry-wide component constraints, labor shortages and any future impact from events outside of our control." --- (TSLA, sec filing, 2024/Q1)

Environmental and Social Consequences

Natural disasters exacerbate social instability through misinformation, as highlighted by Google. Efforts like Microsoft's AI initiatives aid vulnerable populations, while ExxonMobil and Amazon stress the urgent need for emission reductions to mitigate environmental impacts, underscoring the intertwined nature of environmental and social consequences.

"For years, we've seen the significant proliferation of mis and disinformation through social media platforms and how the abuse of these platforms has the power to destabilize our public institutions by fostering election disputes, COVID conspiracies and more, but now the stakes are higher." --- (GOOG, event transcript, 2024/06/07)

"By combining her passion for social good with AI technology, Rinki Gupta is helping the most vulnerable people living in India’s high-risk climate areas. Learn how: https://t.co/ReTIMHPuiR https://t.co/zTt2KzRImC" --- (MSFT, Twitter, 2024/04/24)

"To meet society's emission reduction ambitions, the world needs to do more in a far more serious way." --- (XOM, event transcript, 2024/05/29)

"2023 was the hottest year on record globally. Immediate and sustained greenhouse gas emissions reductions are required to avoid the worst effects of climate change." --- (AMZN, event transcript, 2024/05/22)