The Bank of Korea: "If Annual Rainfall Increases by 1m, Per Capita GRDP Decreases by 2.5%... Climate Risk Must Be Addressed"

Negative Impact on Construction Industry Value-Added Growth
"Need to Increase Interest in 'Adaptation Finance' to Address Climate Change Risks"

A study has found that when the total annual precipitation in South Korea increases by 1 meter due to the impact of climate change, the per capita Gross Regional Domestic Product (GRDP) growth rate declines by an average of about 2.5% in the long term.

Ji-won Lee, head of the Sustainability Growth Research Team at the Financial Stability Department of the Bank of Korea, announced these research findings on the 18th through a BOK Economic Research report titled "Analysis of the Physical Risks of Domestic Climate Change on the Real Economy."

The report explained that, based on an estimated damage function reflecting domestic climate conditions, an increase in total annual precipitation negatively affects GRDP in the long term. The analysis showed that when precipitation increases by 1 meter, per capita GRDP growth decreases by 2.54%.

By industry, sectors with many outdoor production activities and those heavily influenced by labor productivity, such as construction (-9.84%), non-metallic mineral and metal product manufacturing (-6.78%), and finance and insurance (-3.62%), were analyzed to have significant negative impacts on the growth of real value added.

Meanwhile, the rise in average annual temperature due to climate change was found to have no statistically significant effect on per capita GRDP growth overall, but some industries were found to be affected.

Lee explained, "Looking at industries where the long-term growth of real value added was significantly affected by the rise in average temperature, it was found that the increase in average annual temperature mainly has a long-term negative impact on the growth of real value added in the service sector. It is estimated that a 1℃ rise in average temperature would cause damage effects in wholesale and retail trade (-1.85%) and real estate (-1.73%), among others."

Physical risk impacts by domestic industry and region when the effects of climate change accumulate over 5 years. / Source: Bank of Korea

If these climate change impacts accumulate over five years, damage effects are expected in industries such as construction (-4.90%), real estate (-4.37%), textiles, apparel and leather products (-2.53%), non-metallic mineral and metal products (-1.76%), and finance and insurance (-1.13%).

By region, damage effects are calculated to occur in areas located in the southern latitudes or with high urbanization and industrialization ratios, including Jeju (-3.35%), Gyeongnam (-2.39%), Daejeon (-1.54%), Busan (-1.31%), Daegu (-1.03%), Incheon (-0.93%), Ulsan (-0.88%), and Seoul (-0.75%).

The report emphasized the need for government financial authorities' attention to "adaptation finance" and efforts toward carbon neutrality to reduce the physical risks of climate change. Adaptation finance refers to the financial resources required by countries or local communities to reduce damage caused by climate risks.

Lee added, "This suggests that in each industry, systematic awareness and response to the importance of identifying, assessing, and managing physical risks with a long-term perspective are crucial for smooth business operations and future strategies."

This content was produced with the assistance of AI translation services.