As 2015 wound to a close, it was assigned to the record books as the world’s warmest year. Of course, global warming is widely considered to be at play, but meteorologists are particularly interested in the strength of this year’s El Niño, which has exacerbated droughts in some areas, increased floods in others, and led to an unusually mild winter in North America and Europe. The effects of this unusually warm winter on the world economy are representative of the diverse financial consequences of El Niño and of climate variability generally, with weather being blamed for increased production costs, reduced revenues, and reduced GDPs. The question for each of these companies is whether they were prepared for El Niño and integrated weather risk management into their development strategies.
Exploring the El Niño phenomenon
El Niño is well known as a cyclical phenomenon that occurs about once or twice per decade that sees the warm waters of the central Pacific expand eastwards towards North and South America. During the summer period, it increases the risk of decreased rainfall in the Eastern Pacific (India, Indonesia and in the northern part of Australia), and conversely, it rains more in the southern United States and on the west coast of South America. In winter, when El Niño peaks, temperatures are abnormally high in North America and Europe, and there is more intense storm activity in the Gulf of Mexico. It is also accompanied by intense rains. El Niño leads to a significant increase in the number, duration and intensity of weather anomalies around the world.