Sand and snow: Shared financial risk across climate extremes

Climate loss is no longer an occasional shock to absorb. It is more frequent, more severe, and increasingly correlated—events once treated as outliers have become recurring features of the global economy.

In 2025, natural disasters caused around $224bn in global losses, with $108bn insured. Swiss Re estimates that 2025 was the sixth consecutive year in which insured natural catastrophe losses exceeded $100bn.

Floods, heatwaves, wildfires, and ice melt are no longer isolated disasters. They are connected shocks, moving through supply chains, energy systems, and financial markets faster than traditional risk models were built to handle.

This is what climate volatility looks like in practice. The physical climate signal is just as clear as the financial one. The World Meteorological Organization confirms that 2015-2025 were the eleven warmest years on record, with 2025 around 1.43 degrees Celsius above the 1850-1900 average.

The IPCC has also concluded that human-induced climate change has increased the probability of compound extremes, including concurrent heatwaves and droughts. And nowhere is this volatility more visible than at the planet’s extremes.

From the searing heat of the desert to the frozen landscapes of the Arctic, these regions may appear worlds apart. In reality, they are early warning systems for the same challenge: when environments are pushed to their limits, failure becomes systemic.

What happens in sand and snow does not stay there. It shows up in food prices, energy security, infrastructure losses, and (re)insurance balance sheets worldwide, often long before those connections are visible at a local or national level.

The 2023 drought at the Panama Canal offered a preview of this transmission mechanism. Low water levels forced daily transit restrictions from a typical 36 vessels to 24, while more than 160 vessels waited to pass through the canal at the height of the disruption.

A local drought became a logistics problem, an energy-shipping problem, and ultimately a market-pricing problem. That is the new geography of climate risk.

In hot, arid regions, societies have long learned to operate under chronic stress. Water scarcity, extreme heat, and long supply lines have forced innovation not as a sustainability ambition, but as a necessity.

The World Resources Institute’s Aqueduct data show that the Middle East and North Africa is the most water-stressed region in the world, with 83% of its population exposed to extremely high water stress.

Several GCC countries sit among the world’s most water-stressed economies. In this context, resilience is not a policy slogan; it is a condition for economic continuity.

This is particularly true in rapidly evolving economic hubs like the GCC, where managing climate volatility has moved from a local operational challenge to a blueprint for large-scale urban resilience.

Energy systems are built to endure punishing temperatures. Food is produced in controlled environments. Infrastructure is designed for volatility, not stability. These solutions were not developed for export, but to manage existential risk. Yet many of them translate directly to colder regions now facing accelerating disruption.

Renewable microgrids reduce dependence on diesel in remote Arctic communities, lowering outage risk and fuel-price exposure. In Alaska alone, more than 200 remote communities operate independent microgrids, most of them diesel-based, while more than 70 already generate part of their power from renewable sources such as solar, wind, biomass, and hydro.

Controlled-environment agriculture can also reduce reliance on flown-in food, cutting supply-chain fragility and business interruption when transport fails.

In Arctic Canada, an estimated 98% of food products consumed in the Northwest Territories and Yukon, and 72-83% in Nunavut, are imported from outside the territories. Canada’s 2026 National Food Security Strategy now aims to double controlled-environment agriculture production value sold to the Canadian market from C$774m in 2024 to C$1.55bn by 2032.

The exchange runs both ways. Arctic communities are experts in efficiency, insulation, and designing systems that function when failure is not an option. Indigenous knowledge offers lessons in living within environmental limits rather than attempting to overpower them.

These lessons are becoming more urgent. In March 2026, Arctic winter sea ice reached 14.29 million square kilometres, statistically tied with 2025 for the lowest winter maximum in the satellite record and about 1.3 million square kilometres below the 1981-2010 average.

As extreme heat becomes more common globally, cold-climate approaches to efficiency, redundancy, and local adaptation will matter far beyond the polar circle.

What connects these exchanges is not symbolism or goodwill, but risk management. Climate change is fundamentally a story of rising volatility.

Insured losses from natural catastrophes have reached levels that, until recently, would have been considered extreme scenarios. At the same time, protection gaps remain wide, particularly in regions where climate impacts are evolving faster than historical data can explain.

Swiss Re notes that in many emerging economies, 80-90% of catastrophe losses are still uninsured. Munich Re’s 2025 Asia-Pacific data show the imbalance clearly: around $73bn in natural disaster losses, but only around $9bn insured.

Physical damage is only one channel of exposure. Climate is fast becoming a legal and balance-sheet risk as well.

The Grantham Research Institute at the London School of Economics counts more than 3,600 climate-related cases filed across 62 countries, with 249 new cases in 2025 alone, and roughly one in five now targeting companies and their directors rather than governments.

For (re)insurers, that trend feeds directly into liability lines—directors-and-officers and general-liability cover—turning climate from a question about the property book into one about the whole balance sheet.

This places (re)insurance at the centre of the climate adaptation challenge, because it is one of the few parts of the financial services system designed to aggregate risk across regions and see patterns before losses become systemic. These mechanisms exist to absorb shocks before they become failures. But doing so in a changing climate requires a shift.

Models must move beyond backward-looking assumptions and toward forward-looking risk intelligence that captures how climate shocks increasingly interact across geographies, sectors, and time horizons. Risk capital must become more agile, aligning more closely with predictive insights so that mitigation and response can begin before disaster strikes. Artificial intelligence is what increasingly makes this forward-looking shift practical.

AI-based weather models—running operationally at forecasters such as the European Centre for Medium-Range Weather Forecasts since 2025—generate global forecasts in minutes and have improved tropical-cyclone track prediction by up to 20%, while (re)insurers are already using AI-enhanced hazard data to build flood event sets that physics-based models alone could not produce; Swiss Re, for instance, has drawn on AI-generated flood scenarios spanning tens of thousands of simulated years.

The economics support this shift. WMO and CREWS estimate that every US$1 invested in early warning systems can yield up to $10 in benefits, and that 24 hours’ warning of a coming storm can cut damage by 30%. Yet the financing gap remains large: UNEP estimates developing-country adaptation finance needs at $310-365bn per year by 2035, compared with only $26bn in international public adaptation finance flows in 2023.

Resilience, in this context, is not local. It is shared. When warmer regions invest in resilience in colder ones, they are not exporting goodwill. They are reducing future volatility across the system. When colder regions share efficiency and adaptation expertise with hotter ones, they are strengthening the same global risk pool.

There is also a broader signal to this exchange. A partnership between climate extremes reframes climate action as economic stewardship rather than ideology. It recognises that stabilising the foundations of the global economy requires cooperation across geographies that once seemed unrelated.

Imagine a future where desert-engineered energy systems help power Arctic communities, while cold-climate building techniques reshape cities facing record heat. Where data from satellites, sensors, and communities feed into shared platforms that allow risks to be measured and managed in real time. Where capital acts not only as an enabler of rapid recovery, but as a catalyst for prevention and long-term resilience.

This is not a theoretical vision. Pilot projects already exist. What is missing is scale, coordination, and a willingness to see climate adaptation as a global risk-transfer challenge, not just an environmental one.

The forward signal reinforces the urgency. WMO’s 2026-2030 climate outlook estimates a 91% chance that at least one year in that period will temporarily exceed 1.5 degrees Celsius above pre-industrial levels, and an 86% chance that one year will surpass 2024 as the warmest year on record.

By late June 2026, Copernicus data also showed global sea-surface temperatures exceeding the records for that time of year observed in 2023 and 2024.

The hottest places and the coldest places on Earth may look like opposites. In reality, they are mirrors, reflecting what the rest of the world will soon face.

In a warming world, resilience will belong to those who grasp one truth ahead of time: risk is shared long before losses are. Sand and snow sit at opposite ends of the Earth, yet they are already underwriting the same future—whether the global risk system is ready or not.

References

• Copernicus Climate Change Service and Copernicus Marine Service (2026), “Daily global sea surface temperatures break records for the time of year”, July - LINK
• Government of Canada, Agriculture and Agri-Food Canada (2026), “National Food Security Strategy”, June - LINK
• Hailu, G. et al. (2025), “Renewable energy sources for arctic food sufficiency and sustainability”, npj Sustainable Agriculture, July - LINK
• Intergovernmental Panel on Climate Change-IPCC (2021), “Chapter 11: Weather and Climate Extreme Events in a Changing Climate”, in Climate Change 2021: The Physical Science Basis. Contribution of Working Group 1 to the IPCC Sixth Assessment Report on Climate Change, August - LINK
• Munich Re (2026), “Climate change presses on: Devastating wildfires and intense thunderstorms exacerbate losses for insurers”, January - LINK
• Munich Re, NatCatSERVICE (2026), “Natural disasters in 2025: Full-year factsheet”, January - LINK
• NASA (2026), “Arctic Winter Sea Ice Ties Record Low, NASA, NSIDC Scientists Find”, March - LINK
• Swiss Re Institute (2026), “NAT CAT SIGMA 1/2026: Natural catastrophes in 2025 - wildfire and storm risk” - LINK
• Swiss Re Institute (2026), “Adaptation and insurance: strategies to narrow the protection gap”, January - LINK
• Swiss Re Institute (2025). “2025 marks sixth year insured natural catastrophe losses exceed USD 100 billion”, December - LINK
• UN Environment Programme (2025), “Adaptation Gap Report 2025: Running on Empty”, October - LINK
• University of Alaska Fairbanks, Alaska Center for Energy and Power (2024), “Remote Alaska communities benefit from UAF renewable energy research”, May - LINK
• U.S. Energy Information Administration (2023), “Drought at the Panama Canal delays energy shipments, increasing shipping costs”, October - LINK
• World Meteorological Organization (2026), “State of the Global Climate 2025”, March - LINK
• World Meteorological Organization (2026), “Global Annual to Decadal Climate Update 2026-2035”, May - LINK
• World Meteorological Organization (2026), “Climate Risk and Early Warning Systems initiative gets financial boost from G7 countries”, May - LINK
• World Meteorological Organization (2025), “Global Status of Multi-Hazard Early Warning Systems 2025”, November - LINK
• World Resources Institute (2023), “25 Countries Face Extremely High Water Stress”, August - LINK
• European Centre for Medium-Range Weather Forecasts (ECMWF) (2025), “ECMWF’s AI forecasts become operational”, February - https://www.ecmwf.int/en/about/media-centre/news/2025/ecmwfs-ai-forecasts-become-operational
• Fathom (2026), “Fathom flood data integrates into Swiss Re catastrophe model”, January - https://www.fathom.global/newsroom/fathom-swiss-re-flood-data/
• Setzer, J. and Higham, C., Grantham Research Institute, London School of Economics (2026), “Global trends in climate change litigation: 2026 snapshot”, June - https://www.lse.ac.uk/granthaminstitute/publication/global-trends-in-climate-change-litigation-2026-snapshot/