Droughts, Wildfires and the Climbing Cost of Climate Change | Lord Abbett
Image alt tag


There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.


We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.


We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.



Economic Insights

Massive blazes and parched farmlands are joining hurricanes and cyclones as significant sources of global economic pain.

Read time: 2 minutes

According to an August 2021 report by the United Nations Intergovernmental Panel on Climate Change (IPCC), the world’s climate is changing in irreversible ways and we will experience continued global warming. Over many years investors have witnessed the impact of severe storms and cyclones, but the IPCC report highlights that investors must now increasingly plan for the impact of droughts and wildfires on their portfolio.

The U.S. National Oceanic and Atmospheric Administration (NOAA) keeps track of the “billion dollar” climate events affecting the United States that incur costly damage. Their frequency has increased over time. Although monetary cost features in NOAA’s database, we should also be mindful of the human toll—the deaths, property damage, and overall impact to affected areas are also important metrics.

Geography is also crucial since some areas are wealthier than others. A hurricane that hits downtown Manhattan is more costly and impacts a denser area than a wildfire that burns brush in a thinly populated desert (long-term CO2 impacts notwithstanding).

Counting the Damage

Another caveat is that we typically convert historical damage estimates into today’s dollars using the U.S. Consumer Price Index, which is not a perfect instrument for long-term comparisons. Most of the hard-hitting events in the United States from the standpoint of monetary value have been from tropical cyclones, but drought and wildfires have accounted for significant damage as well. Figure 1 offers a grim scorecard of the distribution of damaging climate-related events in the United States:


Figure 1. Count of Large Weather and Climate Disasters in the United States, 1980-2021 (through June 30)

Source: U.S. National Oceanic and Atmospheric Administration.


From a global perspective, data on climate events reveal an increasing frequency of events and a growing cost over time. Again, we also need to consider location, human impact, area impacted, and so forth, rather than just the monetary value of damage. To that point, climate has figured prominently in the five costliest CPI-adjusted disasters on record, per data from the Centre for Research on the Epidemiology of Disasters at the

Université Catholique de Louvain School of Public Health: earthquakes in Japan in 2011 and 1995, hurricanes in Texas in 2005 and 2017, and an earthquake in China in 2008.

While catastrophic storms have captured the lion’s share of attention, data show that wildfires and droughts are increasingly figuring in climate-related damage assessments. One of the most expensive droughts on record was China’s Guangdong province in 1994 (an estimated US$23.7 billion), followed by droughts in the United States in 2011 and 2012, Australia in 1981, and Canada in 1977.

Such disasters may create notable financial knock-on effects. China’s 1994 drought was the spur for construction of the massive, and costly, South-North Water Transfer Project. In the past decade, droughts in the United States also caused some complications for NIPA inventory estimates compiled by the Bureau of Economic Analysis. Even though the value was small by comparison to the rest of U.S. gross domestic product, the whipsawing of inventories during a period of extremely low growth in 2011-2012 was a source of concern for GDP-watchers. More recently, concerns about the water levels in the Rhine almost caused a recession in Germany in 2018.

Wildfires, too, are becoming more expensive over time, with six of the top 10 costliest blazes coming from California alone. Some historical wildfires have been massive in scale. Consider the 1987 fire in China that lasted a month, spread into the Soviet Union, and was at the time the largest wildfire in China’s history, burning an area the size of New England. The recent wildfires in Australia and Greece also rank highly in terms of magnitude of damage.

A Final Word
The recent IPCC report clearly underscored the likelihood that higher temperatures in the future will increase the prevalence of droughts and wildfires. To the extent global temperatures continue to climb and these events occur simultaneously in areas of high GDP impact, they will feature prominently in any investor’s climate concerns.


Article sources:






Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies.

Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.

No investing strategy can overcome all market volatility or guarantee future results.

The value of investments and any income from them is not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Market forecasts and projections are based on current market conditions and are subject to change without notice.

Projections should not be considered a guarantee.


Equity Investing Risks

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. Smaller companies tend to be more volatile and less liquid than larger companies. Small cap companies may also have more limited product lines, markets, or financial resources and typically experience a higher risk of failure than large cap companies.


Fixed-Income Investing Risks

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. 


The credit quality of fixed-income securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.

This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The views and opinions expressed are as of the date of publication, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions, and Lord Abbett disclaims any responsibility to update such views. Lord Abbett cannot be responsible for any direct or incidental loss incurred by applying any of the information offered.

This material is provided for general and educational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Lord Abbett product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice.

Please consult your investment professional for additional information concerning your specific situation.

This material is the copyright © 2021 of Lord, Abbett & Co. LLC. All Rights Reserved.  

Important Information for U.S. Investors


Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.


The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from the municipal bonds held could be declared taxable because of changes in tax laws. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. Income from municipal bonds may be subject to the alternative minimum tax. Federal, state, and local taxes may apply. Investments in Puerto Rico and other U.S. territories, commonwealths, and possessions may be affected by local, state, and regional factors. These may include, for example, economic or political developments, erosion of the tax base, and the possibility of credit problems.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

Important Information for non-U.S. Investors


Note to Switzerland Investors: This is an advertising document.

Note to European Investors: This communication is issued in the United Kingdom and distributed throughout Europe by Lord Abbett UK Ltd., a Private Limited Company registered in England and Wales under company number 10804287 with its registered office at Tallis House, 2 Tallis Street, Temple, London, United Kingdom, EC4Y 0AB. Lord Abbett UK Ltd (FRN 783356) is an Appointed Representative of Duff & Phelps Securities Ltd. (FRN 466588), which is authorised and regulated by the Financial Conduct Authority.





Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field