Space-time clustering of climate extremes amplify global climate impacts, leading to fat-tailed risk

• Main Authors: L. Bonnafous, U. Lall
• Format: Article
• Language: English
• Published: Copernicus Publications 2021-08-01
• Series: Natural Hazards and Earth System Sciences
• Online Access: https://nhess.copernicus.org/articles/21/2277/2021/nhess-21-2277-2021.pdf

<p>We present evidence that the global juxtaposition of major assets relevant to the economy with the space and time expression of extreme floods or droughts leads to a much higher aggregate risk than would be expected by chance. Using a century-long, globally gridded time series that indexes net water availability, every year we compute local occurrences of an extreme “dry” or “wet” condition for a specified duration and return period. A global exposure index is then derived for major mining commodities by weighting extreme event occurrence by local production exposed. We note significant spatial and temporal clustering of exposure at the global level leading to the potential for fat-tailed risk associated with investment portfolios and supply chains. This may not be a surprise to climate scientists familiar with the space-time patterns of interannual to decadal climate oscillations that can affect remote regions through teleconnections. However, the traditional approach of climate risk analysis only considers local or point extreme value analysis and hence does not account for temporal and spatial clustering of exposure for global portfolios. As multinational enterprises and supply chains assess and disclose physical climate risks, they need to consider the much higher chance that they may have multiple assets that may be exposed to extreme wet and/or dry climate extremes in the same year.</p>