Climate change will slice a large chunk from Australia’s economy by 2050 unless swift action is taken, detailed stress-test analysis by Swiss Re projects.

The reinsurer says climate change poses the biggest long-term threat to the global economy.

At the current trajectory of 2 to 2.6 degrees Celsius warming, global gross domestic product (GDP) could be 11–14% less by mid-century than in a world without climate change.

In Australia, the reduction is estimated at 11% to 12%.

The loss under Paris Agreement targets would be significantly less at around 4% both globally and in Australia, according to the analysis, which covers 48 countries accounting for 90% of global GDP.

If no mitigating action is taken, global temperatures could rise by more than 3 degrees Celsius and the world economy could shrink by 18% in the next 30 years, and by around 16% in Australia, Swiss Re says.

Insurers play an important role in reducing climate impacts Swiss Re says, by providing risk transfer capacity, knowledge and long-term investment, and using their understanding of risk to help households, companies and societies mitigate and adapt to climate change.

“Given the long-term horizon of their liabilities and long-term capital to commit, institutional investors such as … insurance companies are ideally positioned to play a strong role,” Swiss Re says.

Australia's economy is subject to impacts from a gradual temperature rise, sea-level rise along the long coastal lines and productivity losses in agriculture, mining and tourism.

Swiss Re wants more carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions, as well as internationally agreed taxonomy for green and sustainable investments.

Institutions should regularly disclose how they plan to achieve the Paris Agreement and net-zero emission targets, it says.

“Climate change is a systemic risk and can only be addressed globally,” Jérôme Haegeli, Swiss Re’s Group Chief Economist said.

“So far, too little is being done. Transparency and disclosure of embedded net-zero efforts by governments and the private sector alike are crucial. Only if public and private sectors pull together will the transition to a low-carbon economy be possible. Global cooperation to facilitate financial flows to vulnerable economies is essential.

“We have an opportunity to correct the course now.”

Global warming can lead to substantial income and productivity losses over time as rising sea levels result in loss of land that could have otherwise been used productively and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most affected by rising temperatures while major economies could lose roughly 10% of GDP in 30 years.

Economies in Asia are set to be hardest hit, with China at risk of losing nearly 24% of its GDP in a severe scenario above 3 degrees warming, while the US stands to lose close to 10% and Europe almost 11%.

Swiss Re says the impact can be lessened if decisive action is taken to meet the targets set in the Paris Agreement.

“This will require more than what is pledged today,” it says. “Public and private sectors will play a crucial role in accelerating the transition to net zero.”

The Swiss Re Institute also ranked each country on its vulnerability to extreme dry and wet weather conditions, finding the most vulnerable countries in this context are Malaysia, Thailand, India, the Philippines. Indonesia was worst-ranked at 48.

Australia scored a moderate 16 dry risk rating and 17 for wet risk rating but the report warned that the nation “has already warmed” and so may not match the rates at which Japan or the UK – which scored 36 and 47 – become hotter and drier.

In countries which span several climates – for example Russia, Australia, China – regional disparity exists given the “diverse nature of different locations within each country,” it says, noting more dry conditions are expected in southeastern Australia, while the north is expected to get wetter, especially during summer.

“Given the size of the country, taking the average climate risk scores at national level may underestimate the true impact from extreme weather events, as the severe dry and wet conditions only exist in some sub-regions of the country,” Swiss Re says.