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The ESG Brief - Climate change and migration
39 Plays2 years ago
HSBC’s James Pomeroy, Global Economist, explores the risks of higher migration flows across the world due to climate change and whether demographic projections are keeping up Disclaimer: https://www.research.hsbc.com/R/51/mGxpLGf Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Introduction to HSBC Global Viewpoint
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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And now onto today's show.
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The following podcast was recorded for distribution on the 27th of June, 2023.
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All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
Introduction to ESG Brief with Jack Reed and James Pomeroy
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Hello, everybody.
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Welcome to the ESG Brief.
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I'm your host, Jack Reed from HSBC Global Research.
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Today, we're at the intersection of demographics and climate change.
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Global economist James Pomeroy, who co-heads the thematic coverage of demographic matters, teamed up with our head of ESG research in Europe, Africa, and the Middle East, James Ridge, to produce a report looking at how climate change may prove to be a shock to the world's demographic projections.
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James is our guest this edition to talk about the report.
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James, welcome.
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Thank you for having me.
Inspiration Behind Climate Change and Demographics Research
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What was the inspiration for the research?
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So there's lots of things behind it.
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Firstly, is I spend a lot of my time looking at demographic projections and we think about the various scenarios by which demographic projections could evolve down and where they could be right, where they could be wrong.
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And we've written a lot over the course of the last year about birth rates.
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One of the big drivers of demographic projections over the course of this decade and the next few decades is the number of births.
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But also you have to think about on a country by country base about migration flows.
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And a lot of the assumptions that are put in to the demographic projections on migration flows are relatively simplistic.
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And we're basically thinking what happens if they're wrong, given some of the risks from climate change across the world in terms of lifting those migration flows.
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Why is the demographics projection so important to you?
Demographics: Economic Impact and Policy Influence
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So demographics are the bedrock of almost your potential of every single economy in the world.
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So you have to think about so many things here.
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We have to think about the working age populations, the number of people you've got in employment or the number of people you've got paying taxes, number of consumers...
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You have to think about the number of pensioners and what that does to your policy decisions about pensions themselves, about health care provision, the ratio of those two things and what it does to how you set taxes, how you set spending patterns.
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All of these things are absolutely crucial in driving potential GDP growth, in terms of driving fiscal dynamics and in terms of driving essentially which economies are going to be the biggest in the world in the future.
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And of course, the ability to plan for all of that.
Impact of Climate Change on Demographic Projections
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Exactly.
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In demographics, we often say a destiny to many senses they are.
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But you also have to think about some of the scenarios by which they aren't.
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And this is one of the biggest parts of this report is thinking about the big shock scenarios by which your demographic projections are very different to the path you think you're going down.
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So if you are...
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a European government who's basing their projections of what they can spend and what they need to think about in terms of healthcare provision and pensions off one set of demographic forecasts if things look quite different be it because people are having many fewer babies like we've written about or because of much higher or lower migration numbers then suddenly those projections and that planning looks very very different.
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And where are these projections coming from most of the time?
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So the real gold standard of demographic projections comes from the UN and their forecasts are widely available and widely used.
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And they're generally quite a good starting point, we think, when thinking about
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demographic projections.
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But there's a number of assumptions that go into those numbers going forwards that we disagree with.
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The first of which is about the number of babies being born.
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We think they're too positive essentially on birth rates picking up in most of the developed world and actually falling
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relatively slowly in the emerging world where we think those numbers could be falling much more quickly.
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And on migration, essentially the numbers assume that global migration just slows from here back to a much, much lower level than we've seen at any point in history.
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And this isn't having a go at the UN at all.
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This is something they write about in their sort of papers that come out with these reports, is they're saying these numbers on migration are almost impossible to forecast.
Uninhabitable Areas and Migration Patterns Due to Climate Change
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What metrics can you use to say, okay, these numbers
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numbers need to go up between this country in this country or vice versa is very very hard to model so they accept there's a huge amount of volatility and uncertainty around migration flows and that's where the role of climate change becomes really really interesting because it's a clear sort of mechanism by which we could see migration flows look very very different to both any point in history and what's baked into some of these demographic assumptions
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And how would they be different?
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So there's lots of ways to think about this.
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So if you think about the impact that climate change can have on migration, it can be a number of different ways.
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It can be that climate change makes many economies largely uninhabitable for people.
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So that can be simply that temperatures rise too much and you can't really live in certain areas if temperatures are too high, partly because of
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human existence or because of certain jobs aren't doable in those areas and huge challenges and that could mean both international migration but also more migration within countries or within regions so that could be to or from coastal areas if you started to see higher or lower temperatures or if you start to see higher sea levels it might be away from coastal areas you've also got the risk around natural disasters
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And if we go into a world where natural disasters are more commonplace, we can create a risk, essentially, that you get more frequent shocks that cause large scale migration from certain parts of the world to other parts of the world as a result.
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So climate change can play a big role in essentially lifting those migration assumptions to much, much higher levels than you'd expect or you could model over the medium term.
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The challenge we've got is we don't really know to what level.
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And those assumptions are sort of things we talk about in the report of different magnitudes of migration flows.
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And of course, it depends on what drives them.
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The nature of migration from a natural disaster is very, very different to a more sustained, slower burn impact of climate change on migration.
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from higher temperatures.
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But both of these things will play a role.
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It seems likely we're going to see much more international migration as a result of climate change.
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The big questions are going to be, one, where do people go from?
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And secondly, where they go to?
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But of course, getting the scale right is very, very hard.
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But James, the reality is, to date, all you really have to go on in the forecasts are episodes where some kind of catastrophic or domestic weather-related crisis forces a lot of people to move from one part of a country to another.
Climate-related Migration Scenarios and Tipping Points
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That's not exactly a case study in international migration caused by climate change.
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Exactly.
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You've generally had a sort of moving away from uninhabitable areas.
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And that's been a key part of migration in a lot of economies where coastal areas have been eroded or land has become less fertile or whatever it needs to be.
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The big question as we go forwards is the global sort of temperatures keep rising.
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And we continue to see greater stresses in terms of the economies and how they're able to function with these high temperatures.
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It could be that agriculture becomes impossible in certain areas.
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It could be that certain industries can't function in certain areas because of higher temperatures.
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And it's those tipping points that can then lead you down a sort of completely different path.
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So it may well be that there's no need for people to migrate out of country X because of where the sort of climate is at the time.
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But five, ten years down the line, you can hit a tipping point where suddenly millions of people need to leave because certain industries just aren't viable.
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And that's the problem with the impact of climate change on migration.
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It's just not linear.
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It's almost that you go to sort of tipping points where things suddenly change, you get huge flows of people, which does make it very hard to model.
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But it also means that the impact on demographic projections could be absolutely enormous.
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So how do you model it?
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The best answer there is you have a guess and you think about scenarios.
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And what we've done in the report is look through essentially historical migration rates between, well, in or out of different countries or regions.
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And we say, what if those numbers are either a little bit lower, 50% lower, 25% lower than they have been in history?
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But then we say, what happens if they're 50% higher?
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What happens if they're double?
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And suddenly when you start thinking about some of those migration flows, you get very, very different numbers in terms of your population projections.
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If you take some economies that historically have had a lot of inward migration, some like Australia, their population today somewhere around 25-30 million.
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But if you think about some of the migration flows into Australia, it can account for a percent or two people of the population per year.
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If you suddenly start thinking, well, what if that migration rate increases?
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Now, Australia is not a massive country by population.
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If those numbers of people coming in is half a million, one million, two million people per year, which is certainly something that's plausible if you had, say, large parts of Southeast Asia that became uninhabitable for one reason or another,
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then suddenly you're talking about a completely different demographic picture in somewhere like Australia.
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And in our sort of modelling just on Australia, you could get the population by the end of the century could be anywhere between 30 and 55 million people.
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And that's a complete sea change compared to sort of base cases, which is a grind ever so slightly higher to sort of somewhere between 35 and 40 million.
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So you're talking about potential differences in projections here that are equivalent to 25% of the population, massive shocks that could come from migration.
Challenges and Variances in UN Projections
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So what's an organization like the United Nations supposed to do to take into account or to better take into account the risks of climate change altering demographic projections?
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think it's a big challenge because these are just scenarios and I think the problem you've got if you're the UN is you need to think about a base case and they sort of have a base case but it's acknowledged that this is almost certainly going to be wrong and I think that's where it gets quite interesting because you know what's going to happen I mean the UN themselves say the movement of people across international borders response to rapidly changing economic social political environmental factors is an erratic process that's what they've written you know you cannot really sort of
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guarantee what those numbers are going to look like on a year-to-year basis or even a decade-to-decade basis.
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So they almost have to have a central case, but they need to be talking about the potential variance in those outcomes and talk about some of these scenarios where inward or outward migration from or to different parts of the world could be much, much higher than they're in these base cases.
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And if they are, suddenly your entire demographic outlook, like I mentioned in the Australia example, just looks completely different.
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Okay, so let's assume that you have these extreme projections and they pan out 10, 20, 30, 40 years down the road.
Policymaker Preparations for Demographic Changes
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Yeah.
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The world is wrestling with these huge migrations.
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What are the implications for policymakers today?
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How can they use this information?
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I think there's two parts to this.
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One is thinking about what this does at a very, very big picture level.
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We all worry, sat here in Europe, about European demographics, which look very concerning.
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Rapidly falling populations in the years to come and the fiscal challenges and headaches that's going to create.
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I mean, in our scenarios, there's very plausible scenarios where Europe's population doesn't fall during the course of this century.
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And that seems wild, but it's plausible given the size of Europe's population and some of the migration that could come from elsewhere.
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That dramatically changes the way you think about policy in terms of retirement ages, in terms of pensions, in terms of taxes.
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All of those things could be wildly different.
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Because your projections today are that in Europe the population is doofull.
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quite considerably over the course of the next few decades.
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Without climate change.
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Without any other impact.
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It almost feels like that's the path we're on.
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And if anything, those numbers are getting worse and worse and worse because birth rates are getting so much lower, particularly in developed economies.
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So huge, huge challenges that are already out there.
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But then you start thinking, okay, how do you make the most of that?
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It's all fair and well saying your population may not shrink, but you've got huge flows of people coming into Europe in this case that you've got to integrate into economy.
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And that is such a massive policy challenge that governments across the world are going to have to take seriously.
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Can we build enough housing?
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Can we put in the right education for people arriving into economies from overseas?
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Can we think about language training, cultural integration?
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These things are massive.
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And I think this is going to be one of the areas where policy is going to have to evolve anyway in the course of the next few years and few decades, thinking about inward migration into certain parts of the world.
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How can we make sure people are integrated properly into the workforce, into society, to avoid those frictions and to make the most, essentially, of that economic opportunity that comes from a much more favourable demographic outlook?
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Because if that policy isn't in place, this huge inflow of population into certain parts of the world could become a problem,
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rather than a solution.
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And we've already got stressed fiscal dynamics because of those underlying population projections, things could get even worse.
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Quite a challenge for policymakers.
Government Policies for High Migration Levels
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Exactly.
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It's very difficult.
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But what you can put in place is the institutions and the availability and the ability to essentially scale things up.
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So it's thinking about if someone arrives in your country, how can you make sure that they've got the appropriate language skills?
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How can you set up policy that enables people to get into the labour force quickly and effectively?
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How can we think about making sure that there's some sort of cultural integration that happens when people arrive?
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All of these things are very, very important and they're important today, even with much lower levels of migration.
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The worry is that many economies, particularly in Europe, have struggled with this massively in the course of the last sort of 10 years or so since we've had these migration numbers that have picked up.
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And the worry is that because the institutions and the frameworks are not in place today,
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they're never going to be suitable for where we could be in the future if some of these scenarios were to play out.
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So what we need to see is progress being made today that allows them to scale up and expand should they be needed further down the line.
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From a number of angles here, it's a very thought-provoking report, James.
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Thanks very much for sharing it with us.
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Thank you very much.
Accessing Full Report and Additional Resources
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The full report by James Pomeroy and James Ridge, Climate and Migration, a Potential Shock to Demographic Projections, is available free to view.
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To see the full report, contact askresearch at hsbc.com.
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That's our latest edition of the ESG Brief.
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Remember, our podcasts are all available on Apple and Spotify through the HSBC Global Viewpoint channel.
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The ESG Brief is one of three podcasts from the team here at HSBC Global Research.
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Our weekly Asia focus called Under the Banyan Tree is also on the HSBC Global channel.
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And our weekly macro brief is now available on most podcast platforms by just searching for the macro brief.
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Thank you very much for listening and a special thanks to James Pomeroy.
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We'll be back soon.
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Thank you for joining us at HSBC Global Viewpoint.
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We hope you enjoyed the discussion.
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