Could climate change trigger a financial crisis?

In recent years regulators have begun warning about the threat that climate change poses to the stability of the financial system. Following its strategy review in July, the European Central Bank (ecb) will assemble a “climate change action plan”. Mark Carney, the former governor of the Bank of England, warned of financial risks from climate change as long ago as 2015. 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.” […] Just how damaging does climate risk stand to be, though? Early stress tests by central banks and disclosures of companies are starting to shed light on the question. For the most part, the evidence that it could bring down the financial system is underwhelming. But a lot hangs on whether governments set out a clear path for reducing emissions, such as through carbon taxes and energy-efficiency standards, giving banks enough time to prepare.

Climate change can affect the financial system in three ways. The first is through what regulators describe as “transition risks”. These are most likely to arise if governments pursue tougher climate policies. If they do, the economy restructures: capital moves away from dirty sectors and towards cleaner ones. Companies in polluting industries may default on loans or bonds; their share prices may collapse.

The second channel is financial firms’ exposure to the hazards of rising temperatures. Attributing individual natural disasters to climate change is tricky, but the Financial Stability Board, a group of regulators, estimates that global economic losses resulting from weather-related catastrophes went from $214bn in the 1980s, in 2019 prices, 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).

The financial system could also be exposed to any wider economic damage caused by climate change, say if it triggered swings in asset prices. This third channel is harder to quantify. Academic estimates of the effect of 3°C of warming (relative to pre-industrial temperatures) veer from financial losses of around 2% to 25% of world gdp, according to the Network for Greening the Financial System, a group of supervisors. Even the gloomiest estimate might prove too rosy if climate change triggers conflicts or mass migrations. […]

Could climate change trigger a financial crisis? Available at: <www.economist.com>. Retrieved on: July. 21. 2023, with adaptations.

Could climate change trigger a financial crisis?

In recent years regulators have begun warning about the threat that climate change poses to the stability of the financial system. Following its strategy review in July, the European Central Bank (ecb) will assemble a “climate change action plan”. Mark Carney, the former governor of the Bank of England, warned of financial risks from climate change as long ago as 2015. 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.” […] Just how damaging does climate risk stand to be, though? Early stress tests by central banks and disclosures of companies are starting to shed light on the question. For the most part, the evidence that it could bring down the financial system is underwhelming. But a lot hangs on whether governments set out a clear path for reducing emissions, such as through carbon taxes and energy-efficiency standards, giving banks enough time to prepare.

Climate change can affect the financial system in three ways. The first is through what regulators describe as “transition risks”. These are most likely to arise if governments pursue tougher climate policies. If they do, the economy restructures: capital moves away from dirty sectors and towards cleaner ones. Companies in polluting industries may default on loans or bonds; their share prices may collapse.

The second channel is financial firms’ exposure to the hazards of rising temperatures. Attributing individual natural disasters to climate change is tricky, but the Financial Stability Board, a group of regulators, estimates that global economic losses resulting from weather-related catastrophes went from $214bn in the 1980s, in 2019 prices, 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).

The financial system could also be exposed to any wider economic damage caused by climate change, say if it triggered swings in asset prices. This third channel is harder to quantify. Academic estimates of the effect of 3°C of warming (relative to pre-industrial temperatures) veer from financial losses of around 2% to 25% of world gdp, according to the Network for Greening the Financial System, a group of supervisors. Even the gloomiest estimate might prove too rosy if climate change triggers conflicts or mass migrations. […]

Could climate change trigger a financial crisis? Available at: <www.economist.com>. Retrieved on: July. 21. 2023, with adaptations.

Could climate change trigger a financial crisis?

In recent years regulators have begun warning about the threat that climate change poses to the stability of the financial system. Following its strategy review in July, the European Central Bank (ecb) will assemble a “climate change action plan”. Mark Carney, the former governor of the Bank of England, warned of financial risks from climate change as long ago as 2015. 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.” […] Just how damaging does climate risk stand to be, though? Early stress tests by central banks and disclosures of companies are starting to shed light on the question. For the most part, the evidence that it could bring down the financial system is underwhelming. But a lot hangs on whether governments set out a clear path for reducing emissions, such as through carbon taxes and energy-efficiency standards, giving banks enough time to prepare.

Climate change can affect the financial system in three ways. The first is through what regulators describe as “transition risks”. These are most likely to arise if governments pursue tougher climate policies. If they do, the economy restructures: capital moves away from dirty sectors and towards cleaner ones. Companies in polluting industries may default on loans or bonds; their share prices may collapse.

The second channel is financial firms’ exposure to the hazards of rising temperatures. Attributing individual natural disasters to climate change is tricky, but the Financial Stability Board, a group of regulators, estimates that global economic losses resulting from weather-related catastrophes went from $214bn in the 1980s, in 2019 prices, 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).

The financial system could also be exposed to any wider economic damage caused by climate change, say if it triggered swings in asset prices. This third channel is harder to quantify. Academic estimates of the effect of 3°C of warming (relative to pre-industrial temperatures) veer from financial losses of around 2% to 25% of world gdp, according to the Network for Greening the Financial System, a group of supervisors. Even the gloomiest estimate might prove too rosy if climate change triggers conflicts or mass migrations. […]

Could climate change trigger a financial crisis? Available at: <www.economist.com>. Retrieved on: July. 21. 2023, with adaptations.

Could climate change trigger a financial crisis?

In recent years regulators have begun warning about the threat that climate change poses to the stability of the financial system. Following its strategy review in July, the European Central Bank (ecb) will assemble a “climate change action plan”. Mark Carney, the former governor of the Bank of England, warned of financial risks from climate change as long ago as 2015. 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.” […] Just how damaging does climate risk stand to be, though? Early stress tests by central banks and disclosures of companies are starting to shed light on the question. For the most part, the evidence that it could bring down the financial system is underwhelming. But a lot hangs on whether governments set out a clear path for reducing emissions, such as through carbon taxes and energy-efficiency standards, giving banks enough time to prepare.

Climate change can affect the financial system in three ways. The first is through what regulators describe as “transition risks”. These are most likely to arise if governments pursue tougher climate policies. If they do, the economy restructures: capital moves away from dirty sectors and towards cleaner ones. Companies in polluting industries may default on loans or bonds; their share prices may collapse.

The second channel is financial firms’ exposure to the hazards of rising temperatures. Attributing individual natural disasters to climate change is tricky, but the Financial Stability Board, a group of regulators, estimates that global economic losses resulting from weather-related catastrophes went from $214bn in the 1980s, in 2019 prices, 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).

The financial system could also be exposed to any wider economic damage caused by climate change, say if it triggered swings in asset prices. This third channel is harder to quantify. Academic estimates of the effect of 3°C of warming (relative to pre-industrial temperatures) veer from financial losses of around 2% to 25% of world gdp, according to the Network for Greening the Financial System, a group of supervisors. Even the gloomiest estimate might prove too rosy if climate change triggers conflicts or mass migrations. […]

Could climate change trigger a financial crisis? Available at: <www.economist.com>. Retrieved on: July. 21. 2023, with adaptations.

No matter where I was posted, whether abroad or back in Ottawa, I usually managed to spend a brief summer vacation in France. There I dispensed with women altogether, caught up on my reading, and tried to write a book. I meant it to be a summary of recent times, with my experiences and judgment used tactfully, never intrusively, as a binding thread. I would have called it “My Century,” but the title had already been employed by a celebrated Polish poet. Every year at high summer, I was driven to unpack my Hermes, set it on the marble table in the shadiest part of the terrace, roll in a sheet of Extra Strong, and type “Chapter 1.” I could see a tamed and orderly design of streams and rivulets (early youth, intellectual awakening) feeding a tranquil river that debouched into a limpid sea. Unfortunately, it wanted only a few minutes for the sea to churn up and disgorge a ton of dead fish. Most people considered great were in reality only average; middling masters I held in contempt; as for amateurs in any field, I saw no reason why they should not be airlifted to Mongolia and left to forage. Obviously, this was of no interest to anyone except cranks; yet I felt no spite, no disappointment, no envy of younger men. I had done nearly everything I wanted, and had been as successful as my aunt had hoped.

After half an hour I would push the typewriter aside, open a thick notebook, uncap the gold Parker I was given years ago for having passed, unexpectedly well, an examination in political science, and write, “Chapter 1.” Then I would cap the pen and stare at the Mediterranean, wondering if the wisp of darkness on the horizon could be a mirage projection of Corsica.

Apart from this activity I ate breakfast and lunch at home, went down for a swim early, when no one was around, played some tennis at a court up near the railway station, and dined with elderly neighbors. At the end of a few weeks I bolted the window shutters, disconnected and locked up the telephone (so that burglars would not be tempted to make long-distance calls), and returned to the wrack and low tide of my profession.

GALLANT, Mavis. Let it Pass. In: Montreal Stories. Toronto: McClelland & Stewart, 2004. (adapted)

No matter where I was posted, whether abroad or back in Ottawa, I usually managed to spend a brief summer vacation in France. There I dispensed with women altogether, caught up on my reading, and tried to write a book. I meant it to be a summary of recent times, with my experiences and judgment used tactfully, never intrusively, as a binding thread. I would have called it “My Century,” but the title had already been employed by a celebrated Polish poet. Every year at high summer, I was driven to unpack my Hermes, set it on the marble table in the shadiest part of the terrace, roll in a sheet of Extra Strong, and type “Chapter 1.” I could see a tamed and orderly design of streams and rivulets (early youth, intellectual awakening) feeding a tranquil river that debouched into a limpid sea. Unfortunately, it wanted only a few minutes for the sea to churn up and disgorge a ton of dead fish. Most people considered great were in reality only average; middling masters I held in contempt; as for amateurs in any field, I saw no reason why they should not be airlifted to Mongolia and left to forage. Obviously, this was of no interest to anyone except cranks; yet I felt no spite, no disappointment, no envy of younger men. I had done nearly everything I wanted, and had been as successful as my aunt had hoped.

After half an hour I would push the typewriter aside, open a thick notebook, uncap the gold Parker I was given years ago for having passed, unexpectedly well, an examination in political science, and write, “Chapter 1.” Then I would cap the pen and stare at the Mediterranean, wondering if the wisp of darkness on the horizon could be a mirage projection of Corsica.

Apart from this activity I ate breakfast and lunch at home, went down for a swim early, when no one was around, played some tennis at a court up near the railway station, and dined with elderly neighbors. At the end of a few weeks I bolted the window shutters, disconnected and locked up the telephone (so that burglars would not be tempted to make long-distance calls), and returned to the wrack and low tide of my profession.

GALLANT, Mavis. Let it Pass. In: Montreal Stories. Toronto: McClelland & Stewart, 2004. (adapted)

No matter where I was posted, whether abroad or back in Ottawa, I usually managed to spend a brief summer vacation in France. There I dispensed with women altogether, caught up on my reading, and tried to write a book. I meant it to be a summary of recent times, with my experiences and judgment used tactfully, never intrusively, as a binding thread. I would have called it “My Century,” but the title had already been employed by a celebrated Polish poet. Every year at high summer, I was driven to unpack my Hermes, set it on the marble table in the shadiest part of the terrace, roll in a sheet of Extra Strong, and type “Chapter 1.” I could see a tamed and orderly design of streams and rivulets (early youth, intellectual awakening) feeding a tranquil river that debouched into a limpid sea. Unfortunately, it wanted only a few minutes for the sea to churn up and disgorge a ton of dead fish. Most people considered great were in reality only average; middling masters I held in contempt; as for amateurs in any field, I saw no reason why they should not be airlifted to Mongolia and left to forage. Obviously, this was of no interest to anyone except cranks; yet I felt no spite, no disappointment, no envy of younger men. I had done nearly everything I wanted, and had been as successful as my aunt had hoped.

After half an hour I would push the typewriter aside, open a thick notebook, uncap the gold Parker I was given years ago for having passed, unexpectedly well, an examination in political science, and write, “Chapter 1.” Then I would cap the pen and stare at the Mediterranean, wondering if the wisp of darkness on the horizon could be a mirage projection of Corsica.

Apart from this activity I ate breakfast and lunch at home, went down for a swim early, when no one was around, played some tennis at a court up near the railway station, and dined with elderly neighbors. At the end of a few weeks I bolted the window shutters, disconnected and locked up the telephone (so that burglars would not be tempted to make long-distance calls), and returned to the wrack and low tide of my profession.

GALLANT, Mavis. Let it Pass. In: Montreal Stories. Toronto: McClelland & Stewart, 2004. (adapted)

No matter where I was posted, whether abroad or back in Ottawa, I usually managed to spend a brief summer vacation in France. There I dispensed with women altogether, caught up on my reading, and tried to write a book. I meant it to be a summary of recent times, with my experiences and judgment used tactfully, never intrusively, as a binding thread. I would have called it “My Century,” but the title had already been employed by a celebrated Polish poet. Every year at high summer, I was driven to unpack my Hermes, set it on the marble table in the shadiest part of the terrace, roll in a sheet of Extra Strong, and type “Chapter 1.” I could see a tamed and orderly design of streams and rivulets (early youth, intellectual awakening) feeding a tranquil river that debouched into a limpid sea. Unfortunately, it wanted only a few minutes for the sea to churn up and disgorge a ton of dead fish. Most people considered great were in reality only average; middling masters I held in contempt; as for amateurs in any field, I saw no reason why they should not be airlifted to Mongolia and left to forage. Obviously, this was of no interest to anyone except cranks; yet I felt no spite, no disappointment, no envy of younger men. I had done nearly everything I wanted, and had been as successful as my aunt had hoped.

After half an hour I would push the typewriter aside, open a thick notebook, uncap the gold Parker I was given years ago for having passed, unexpectedly well, an examination in political science, and write, “Chapter 1.” Then I would cap the pen and stare at the Mediterranean, wondering if the wisp of darkness on the horizon could be a mirage projection of Corsica.

Apart from this activity I ate breakfast and lunch at home, went down for a swim early, when no one was around, played some tennis at a court up near the railway station, and dined with elderly neighbors. At the end of a few weeks I bolted the window shutters, disconnected and locked up the telephone (so that burglars would not be tempted to make long-distance calls), and returned to the wrack and low tide of my profession.

GALLANT, Mavis. Let it Pass. In: Montreal Stories. Toronto: McClelland & Stewart, 2004. (adapted)