Insight Investment

In this paper we seek to understand how global migration could be impacted by climate change in the event of a pessimistic scenario for temperature change. This included the expected catalysts for climate migration, where these migrants are likely to go, and the potential impact of larger numbers of international migrants. We focus on the period up to 2050, utilising data from international agencies such as the UN and World Bank. 2050 is at the longer end of most investors’ time horizons and captures the maturity of many of the bonds in issuance today.

As outlined in the paper “all scenarios are wrong, but some are useful”, for stress tests and financial risk purposes, it is useful to use scenarios that sit further in the tail of probability distributions rather than central scenarios. There is a growing risk that the world ends up in one of these more pessimistic scenarios, so using them provides us with a prudent outlook for the purpose of assessing financial market and economic risks. Our analysis suggests that by 2050:

• 211 million people displaced as a result of climate change
• That although the majority of displaced people will remain in their countries of origin, 65 million could become international climate refugees
• Developed countries could need to plan for 27 million climate refugees (both from internal and international sources)

It is notable that these trends would be expected to intensify after 2050, with an accelerating rise in sea levels between 2050 and 2100 adding to the world’s problems.

• Assuming that international climate migrants follow well-established migrant corridors, many will head to very high, or high, income countries. Countries such as the US, Saudi Arabia, France, the UK and Germany have large existing migrant communities, and high relative wealth makes them attractive for those that have the resources to reach them. Our analysis of the data suggests that these numbers could be significant.
• In France the UN median net migration projection is for an additional 2.7m migrants by 2050, but our analysis suggests that climate migration could add a further 3m migrants to that number. The UK could see 2.2m additional climate migrants above current UN projections of 7.4m, while the US could see an additional 7.7m above current projections of 33.3m. Perhaps surprisingly, there may also continue to be significant inflows into the wealthy Arab Gulf states from South and South-East Asia as well as other parts of the Middle East and North Africa. These migration patterns would have a significant impact on infrastructure requirements and are likely outside current government plans of most countries.
• While well-planned migration can help economies deal with demographic deficits, perceptions of migration appear to be changing, with surveys suggesting that reducing migration is now of increasing importance to voters in both Europe and the US. This is occurring even before climate migration has a meaningful impact on international migration.

This analysis will help us to challenge our future investment decisions. Some countries will face a significant fiscal strain either from mitigating   Climate-change effects or from dealing with displaced people. However, it also introduces potential for longer-term boosts to GDP, productivity, and tax revenues if countries can craft effective integration policies and welcome migrants into the labour force to fill demographic deficits.