Climate change is a global phenomenon that is already having a significant impact on businesses and investments in Kenya and Africa. Rising temperatures, changing rainfall patterns, and more frequent and severe weather events are affecting the agricultural sector, infrastructure, and overall economic development in the region.
One of the most significant impacts of climate change on business and investing in Kenya and Africa is on agriculture. Changes in temperature and rainfall patterns are affecting crop yields and the ability to grow certain crops. This is having a direct impact on farmers, who are facing reduced income and increased costs due to the need to adapt to new growing conditions. For example, in Kenya, the farmers are facing challenges such as prolonged droughts and floods, which are making it difficult for them to grow crops such as maize, beans, and wheat. This is affecting their livelihoods and also the food security in the country.
Kenya has been hit hard by recurring droughts in recent years, with the effects of climate change making the situation worse. The drought has had a significant impact on businesses in the country, particularly in the agricultural sector, which is a major source of employment and foreign exchange earnings.
According to a report by the United Nations, drought in Kenya has affected 2.7 million people, including 500,000 children who are malnourished. The report also notes that over 3 million people are in need of food assistance, with the number expected to rise as the drought continues.
The agricultural sector has been hit particularly hard, with crop yields decreasing and livestock dying due to a lack of water and fodder. The Kenya National Bureau of Statistics reports that the agricultural sector contracted by 3.5% in the first quarter of 2019, compared to a growth of 6.4% in the same period in 2018. The report also notes that the sector’s contribution to the economy decreased from 28% in the first quarter of 2018 to 26% in the same period in 2019.
The tourism sector has also been affected, as the drought has led to a decline in wildlife numbers, which is a major attraction for tourists. The East African Wild Life Society estimates that 50% of Kenya’s wildlife could die due to the drought, which would have a significant impact on the tourism industry.
The manufacturing sector has also been affected, with power shortages due to the decrease in hydroelectric power generation. The Kenya Association of Manufacturers estimates that the manufacturing sector has lost over KES 10 billion (USD 100 million) due to power outages.
In 2017, Hurricane Maria severely impacted Puerto Rico’s power grid, causing widespread power outages and leaving businesses without electricity for weeks. This event had a significant impact on the island’s economy, with businesses struggling to operate and losing revenue.
On February 6, 2023, a powerful 7.8 magnitude earthquake and a series of strong tremors and aftershocks devastated southeast Turkey (officially the Republic of Türkiye) and northwest Syria. The death toll has passed 35,000 and continues to rise. Tens of thousands have been injured and hundreds of thousands displaced across a region already beset by turmoil from the nearly 12-year conflict in Syria and the ongoing refugee crisis.
The Impact of Climate Change on Investments- A Real and Present Risk
Climate change is no longer a distant threat. It is happening right now, and its impact on various sectors, including investments, is becoming increasingly evident. Investors who are not factoring climate change into their investment decisions may be putting themselves at financial risk
The effects of climate change are felt in many ways, from extreme weather events to rising sea levels, to droughts and wildfires. All of these events can have an impact on the economy and financial markets. For example, hurricanes, floods, and wildfires can disrupt the supply chains of companies, leading to revenue losses and lower stock prices.
According to a report by the Intergovernmental Panel on Climate Change (IPCC), global temperatures are expected to rise by 1.5°C by 2040, which could have significant economic impacts. The report states that the global economy could shrink by 6% by the end of the century due to the effects of climate change. The report also warns that financial markets could experience significant losses due to climate change risks.
Impact on Specific Industries
The effects of climate change will not be felt equally across all industries. Some industries will be hit harder than others. For example, the agriculture industry could be significantly impacted by changes in temperature and rainfall patterns. The World Bank estimates that climate change could cause a 50% decline in agricultural yields in some regions by 2100.
The energy industry will also be impacted by climate change, as it is a major contributor to greenhouse gas emissions. As governments around the world implement policies to reduce emissions, energy companies could face significant financial losses. For example, coal companies in the United States have already experienced significant losses due to the increasing use of renewable energy sources.
Opportunities in Green Investments
While climate change presents significant risks to investments, it also presents opportunities. As governments and businesses around the world strive to reduce their carbon footprints, there is a growing demand for green investments. These investments focus on companies that are committed to reducing their carbon emissions and promoting sustainable practices.
According to a report by the Global Sustainable Investment Alliance, the global sustainable investment market was worth $31 trillion in 2020. This represents a 15% increase from 2018, indicating a growing interest in sustainable investments.
Possible Statistics:
- According to a report by the Global Risks Report 2021, climate action failure was identified as the most impactful risk in the next decade, based on likelihood and impact.
- The global sustainable investment market was worth $31 trillion in 2020, representing a 15% increase from 2018 (Global Sustainable Investment Alliance).
- The agriculture industry could face a 50% decline in yields in some regions by 2100 due to climate change (World Bank).
- In 2021, the US experienced 22 weather and climate disasters, each with losses exceeding $1 billion, resulting in a total cost of $95 billion (National Oceanic and Atmospheric Administration).
- In 2020, coal production in the United States fell to its lowest level since 1965, as coal-fired power plants continued to retire (US Energy Information Administration).
Global Impact of Climate Change on Businesses and Investments
The impact of climate change is not limited to specific countries or regions, as it is a global phenomenon. The World Economic Forum estimates that by 2030, the world will experience $1 trillion in climate-related damages annually, with businesses and investments at risk of being severely affected. This estimate underscores the importance of taking action to mitigate the risks and seize the opportunities presented by climate change.
In addition, businesses and investments in developing countries are particularly vulnerable to the impacts of climate change. These countries often lack the infrastructure and resources to adapt to changing weather patterns and are at risk of losing their competitive edge in the global market. For example, in Kenya, smallholder farmers who rely on rain-fed agriculture are particularly vulnerable to climate change impacts such as droughts and floods. The resulting food insecurity and loss of income can negatively affect the country’s economy, with potential implications for investors.
Actionable Points for Businesses and Investors
- Businesses and investors can take several actions to mitigate the risks and seize the opportunities presented by climate change. Some of these actions include:
- Conducting a Climate Risk Assessment: Businesses and investors should conduct a climate risk assessment to identify the risks and opportunities presented by climate change. This assessment should include an evaluation of the physical, transition, and liability risks of climate change and the potential impact on operations and investments.
- Developing a Climate Strategy: Businesses and investors should develop a comprehensive climate strategy that outlines how they plan to mitigate the risks and seize the opportunities presented by climate change. The strategy should be integrated into the overall business strategy and address the following areas:
- Reduce Carbon Footprint: Businesses and investors should take steps to reduce their carbon footprint by implementing energy-efficient practices and transitioning to renewable energy sources. For example, businesses can invest in energy-efficient equipment, adopt green building practices, and use sustainable transportation.
- Adapt to Climate Change: Businesses and investors should also develop adaptation strategies to address the impacts of climate change. This may include measures such as water conservation, drought-resistant crops, and flood mitigation measures.
- Engage Stakeholders: Businesses and investors should engage with stakeholders, including employees, customers, suppliers, and the community, to increase awareness of climate change risks and opportunities and to garner support for the climate strategy.
- Invest in Renewable Energy: Investors can take advantage of the growing demand for renewable energy and invest in renewable energy projects. This can be done through renewable energy mutual funds, exchange-traded funds, or direct investments in renewable energy projects.
- Invest in Sustainable Businesses: Investors can also invest in sustainable businesses that have a low carbon footprint and are focused on environmental, social, and governance (ESG) factors. This can be done through ESG mutual funds, exchange-traded funds, or direct investments in sustainable businesses.
- Support Climate Policy: Businesses and investors can support climate policy by advocating for policies that address the risks of climate change and promote the transition to a low-carbon economy. This can include supporting policies such as carbon pricing, renewable energy subsidies, and energy efficiency standards.
Conclusion
Climate change presents significant risks and opportunities for businesses and investors, both in Kenya, Africa, and globally. Businesses and investors must take action to mitigate the risks and seize the opportunities presented by climate change. This includes conducting a climate risk assessment, developing a comprehensive climate strategy, investing in renewable energy and sustainable businesses, and supporting climate policy. By taking these actions, businesses and investors can not only mitigate the risks of climate change but also contribute to the fight against climate change and create value for their stakeholders.