An interesting Article in the Economist this weekend
https://www.economist.com/finance-and-economics/2021/09/04/could-climate-change-trigger-a-financial-crisis. Could climate change trigger a financial crisis? from TheEconomist
Climate change poses a major risk to the stability of the financial system says Mark Carney - the former governor of the Bank of England.
In America the Commodity Futures Trading Commission last year published a 200-page report beginning “Climate change poses a major risk to the stability of the US financial system.”
They identify 4major risks
- Capital moves away from dirty sectors and towards cleaner ones.
- Firms’ exposure to the hazards of rising temperatures.
- Global economic losses resulting from weather-related catastrophes went from $214bn in the 1980s to $1.62trn in the 2010s, roughly trebling as a share of global gdp. These losses are often borne by insurers (though over time the costs should be passed on to customers through higher premiums).
- Academic estimates of the effect of 3°C of warming - veer from financial losses of around 2% to 25% of world gdp, and even the gloomiest estimate might prove too rosy if climate change triggers conflicts or mass migrations. Fire sales of assets and a widespread repricing of risk could spill over into higher borrowing costs. (Ignoring the fact that living in this climate would be pretty shitty!)
According to Carbon Tracker, a climate think-tank, around $18trn of global equities, $8trn of bonds and perhaps $30trn of unlisted debt are linked to high-emitting sectors of the economy and will disappear by 2050.
Carbon Tracker’s stress tests - showed that best results would occur if the economy had time to adjust and the change would be adequately planned - vs forced change as a result of handling a disaster !
So what can we do today?
As Peter Mousaferiades said at our forum on Thursday -
This is the decisive decade
What we do in the next 10 years will determine the date of our Children and Grandchildren
