A report from the London Assembly is warning that London’s economy is at significant risk from extreme world weather and is calling for urgent action to be taken to address the issue.

The London Assembly Economy Committee report ‘Weathering the Storm’, looks into the impact of climate change on London’s economy in terms of risks and opportunities.

Jenny Jones AM, the report author and former Chair of the Economy Committee, said that during the course of its investigation the Committee had found that too little was still being done to understand and prepare for the potential costs to London’s economy.

The report says that London’s status as a global city makes its economy increasingly vulnerable to climate change. In addition to the higher risk of flooding, drought and heatwave events at home, the city’s interdependence with economies elsewhere in the world means it 'imports' risk through the financial services sector and international supply chains. According to the Committee, the risks are poorly understood in the capital even as their likelihood and potential severity increase.

Water scarcity, extreme flooding, land loss and heatwaves are expected to become increasingly commonplace in the critical food-producing and industrialising regions which provide the basis for many of London’s supply chains. However, little work has been done to establish the extent of this risk for London’s economy.

Many businesses, including 54 per cent of FTSE 100 firms, have not built climate change adaptation into their business strategy or continuity planning. Small and medium enterprises are particularly unlikely to have taken steps to prepare for the risk of climate change: evidence suggests 60 per cent have no plan in place to deal with extreme weather conditions. The report says adaptation strategies which SMEs have put in place, some as a result of work through Business Improvement Districts (BIDs), rarely take into account the wider vulnerabilities of global supply chains and investments.

The report says London’s economic links with the rest of the world expose the capital to many less obvious risks which are still poorly understood, including:

• Businesses risks affecting their overseas assets and risks through their supply chains, particularly when they involve countries that are more vulnerable and less well placed to adapt.
• Without adaptation, rising costs for the insurance sector as a result of climate change could make commercial business cover prohibitively expensive
• Risks complicated by uncertainty about the level of global warming we can expect to experience.

“Detailed work absolutely essential to secure London’s future economic prosperity"

Launching the report, Jenny Jones commented:

“Too little is being done to understand and prepare for the potential costs of climate change. London faces a great unknown when it comes to how our supply chains and economy will be hit by extreme weather events. For example, the damage from the 2011 floods in Thailand, where IT component parts are made, meant much higher prices across the global IT industry, including in London. A much worse situation would be if too many harvests failed and affected our food supply.”

“Detailed work is absolutely essential to secure London’s future economic prosperity. We need to diversify London’s economy and further invest in our green economy. That way, our city will be stronger and more resilient whatever the level of future global warming.”

The report makes a number of recommendations, including:

• Little work has been done to establish the full impact of extreme weather events on London’s supply chains. The London Climate Change Partnership should map the major supply chain vulnerabilities of London’s economy.
• The Mayor should drive forward a resilient low carbon economy for London by promoting skills in this area and encourage innovation in the green economy.
• Climate change adaptation should be integrated into the Mayor’s Economic Development Strategy - currently it does not feature.
• The London Climate Change Partnership, in collaboration with the Environment Agency, must develop a monitoring and evaluation programme for London, to measure the extent of business adaptation to climate change.

Prosperity of London’s financial services industry may be at risk

The Committee says the prosperity of London’s financial services industry may be at risk, because its global investments are vulnerable to the impacts of climate change in other parts of the world. This is compounded  by the extent to which major investors based in London have made investments in fossil fuels.  Any global carbon emissions agreement made, at the UN climate change conference later this year, could make proven fossil fuel reserves un-burnable, and cause the value of fossil fuel investments to fall. The Bank of England is currently conducting an inquiry into climate change adaptation which will consider the possibility of fossil fuel reserves becoming stranded assets.

Opportunity for London to become global leader for resilience services

The report also flags up the opportunity for London to lead the world in services that build resilience into economies. The Committee says opportunities for economic diversification, through investment in the green economy, are growing but need further encouragement and support.

London’s adaptation sector already has an estimated turnover of £431 million, and employs around 4,000 people (2011/12 figures). However there remains a lack of concerted investment in adaptation skills, research and business development. The Committee is calling for the Mayor, and London & Partners, to do more to promote London’s internationally recognised strengths in the sector, and attract further overseas investment in London’s adaptation technologies.

Click here to read the report in full.