China's climate action good for middle class

The year 2015 was the warmest on record globally. In Asia, we saw the strongest El Nino ever recorded, which was linked to drought in Southeast Asia, wildfires in Indonesia and an unusually active cyclone season in the Pacific. We also saw the first ever "red alert" for smog in Beijing, driven in part by the burning of fossil fuels, which contribute to climate change.

But we also saw real progress in tackling climate change with the historic agreement in Paris by 196 countries, including China, to try to limit the rise in global temperature to less than 2 degrees C. While talking about the impacts of climate change, however, we often overlook the world's middle-class population, which has swelled to 1 billion and is concentrated in rapidly growing, densely populated cities, mostly located in coastal areas of emerging markets where manufacturing and trade have flourished.

The Paris agreement comes at a critical time for them: UBS's analysis of data for more than 200 cities around the world found that the middle class is highly exposed to weather hazards and underinsured. Our report, "Climate Change: A Risk to the Global Middle Classes", concludes Asia, China in particular, is high on the risk indicators given the rapid urbanization and economic progress of the region.

These risks take several forms. High temperatures harm productivity in both agricultural and non-agricultural industries. When annual average temperatures reach between 20 C and 30 C, labour supply, productivity and crop yields all decline abruptly.

Also, a city can be a dangerous place during heat waves. Large expanses of asphalt and limited green space contribute to a localized increase in temperature of up to 3 C during the day and by as much as 12 C in the evening. This exponentially increases the risk of heat-related mortality - more than 50,000 Russians died in the heat wave of 2010. Air-conditioning helps, but ultimately creates a vicious cycle: increased energy demand leads to increased air pollution from fossil fuels and higher carbon dioxide emissions that drive up temperatures further.

Weather disasters are becoming more frequent; they have increased seven-fold between 1975 and 2014. Cities across Southeast Asia are particularly vulnerable to extreme weather, threatening $12.6 trillion in GDP and close to 1 billion people. Floods are the most costly natural disasters and, in the past 10 years, many countries, including China in 2010, have experienced severe and expensive floods.

Some of the densest and fastest-growing urban areas are in China's low-lying coastal zones, placing them very high on the risk scale. In fact, four of the top 10 cities in the world at risk are in China: Guangzhou, Shenzhen, Tianjin and Xiamen. If we look at average annual flood loss as a proportion of a city's GDP - which shows how much of a city's annual economic output would have to be put aside per year to pay for anticipated future flood losses - it amounts to 1.32 percent for a city like Guangzhou. That could equate to an average annual cost of $13.2 billion by 2050.

The bad news is that there is no backstop for the losses caused by natural disasters: China is extremely underinsured, with just 0.12 percent of property value covered by insurance, one-tenth the rate of the US. Among the many painful impacts of natural disasters, this points to a lasting economic impact in the form of devastating property loss for an affected region's middle class or significant cost to governments as the "insurer of last resort".

Our study points to many shortfalls that must be addressed to protect the engine of global economic growth, the middles class. Continuing to expand the use of clean energy, improve infrastructure and make insurance more accessible and affordable in at-risk cities is critical. Fortunately, our research indicates the middle class has the power to be its own advocate. Ultimately, we believe it will be pressure from the middle class that will force policymakers to address the way we slow climate change. Now that China has assumed the presidency of the G20 for 2016, it has a chance to show its leadership.

Caroline Anstey is global head of UBS and Society, and Paul Donovan is global economist, UBS, and a co-author of Climate Change: A Risk to the Global Middle Classes.