Arctic development presents special risks: Lloyd’s

Climate change is opening up the Arctic to commercial development, bringing with it a unique set of risks and challenges for countries like Canada, Lloyd’s says in a recent Risk Insight report.

Environmental issues, particularly oil spills, are a challenge to the Arctic that will require further examination, according to the study published by Lloyd’s and Chatham House.

“The resilience of the Arctic’s ecosystems in terms of withstanding risk events is weak, and political sensitivity to a disaster is high,” the report notes. “As a result, companies operating in the Arctic face significant reputational risk.”

Lloyd’s says the Arctic, which includes parts of the United States, Canada, Russia, Norway, Sweden, Finland and the whole of Greenland and Iceland, is being transformed at an “unprecedented” rate. The reduction in sea ice could extend oil and gas exploration, increase access to mineral wealth and open up potential new ice-free shipping routes.

Estimates suggest untapped reserves in the Arctic could account for 30% of global undiscovered natural gas and 13% of the estimated global total of undiscovered oil. The likelihood of oil transport on international shipping routes represents a key threat to the Arctic environment, Lloyd’s notes.

“Risk management clearly has a critical role to play in helping businesses, governments and communities to manage these uncertainties and minimize risks,” says Richard Ward, chief executive of Lloyds. “However, to do so effectively requires the most up-to-date information to analyze and control risks. There is a clear need for sustained investment in Arctic research.”