Murky Waters: Climate Signals and Uncertainty in Flood Risk

The common approach of using statistics based on measurements from past flood events to estimate the likelihood of future flooding is becoming increasingly outdated. Due to intensified rainfall and rising sea levels, the more than 1°C of global warming already seen has changed the processes that govern flood generation. It has become essential, therefore, for financial institutions to use forward-looking climate-scenario analysis to accurately estimate their current and future flood risk.

Even if the global mean temperature was kept at its current level, the risk of coastal flooding would increase for decades or centuries as polar ice and glaciers melt slowly in response to the global warming already present in the climate system.¹ This “lagged” climate-change signal for coastal flooding is why we see little relative difference between climate-change scenarios for coastal flooding compared to other flood types (left-hand exhibit), and why a risk assessment for coastal floods would require forward-looking climate data even if global warming were to end today.

Fluvial flooding does not show this lagged climate signal but is a complex topic in its own right. Hazard and cost trends related to fluvial floods are less certain and vary more by region than for other flood types because fluvial floods are generated through the interplay of many processes, which all face regionally differing impacts from climate change. This means that in some regions fluvial-flood risk is expected to increase in the future, while other regions will see no changes or even reduced damages (right-hand exhibit).

This analysis highlights the importance of climate-scenario analysis for flood-risk assessments. It shows how climate change affects each flood type differently, with unexpected changes in financial risk, and that financial institutions will need to leverage all tools and data at their disposal to navigate this complex landscape.