Connect with us

Hi, what are you looking for?

CleanTechnica

Buildings

Investors: It’s Time To Calculate Climate Crisis Risks

Global temperatures that are set to rise by 3 degrees Celsius by the end of the century are set to wreak havoc on the markets.

The climate crisis is expected to increase the probability and severity of many climatic hazards such as floods, heatwaves, and droughts, which translates into shocks for economies and financial markets. Climate crisis risks are real for equity investors, although they are not being addressed as robustly as they should be.

The most recent International Monetary Fund (IMF) Global Financial Stability Report points out that physical risk — loss of life and property as well as disruptions to economic activity — is already difficult for equity investors, and climate crisis pricing increases make it even more so.

The IMP says equity investors have several factors they need to weigh:

  • the likelihood of various climate scenarios
  • the implications of those scenarios for physical risk at the firm level based on climate science
  • expected mitigation efforts
  • anticipated adaptation actions
  • time horizons for these changes

Together, these bode poorly for investors, as the impact of climate change physical risk on financial stability is likely already much worse than is currently understood.

climate crisis risks

Photo by Carolyn Fortuna | Torrential spring rains in SE Florida resulted in impassable roads for days on end.

The IPCC offered a foreboding report in 2018 that future anthropogenic greenhouse gas emissions would lead to warming of about 3 degrees Celsius by the end of the century. The report offered alternative scenarios, too, through stabilizing the global temperature increase below 1.5°C versus higher levels. The result? The planet would suffer less negative impacts on intensity and frequency of extreme events. Resources, ecosystems, biodiversity, food security, cities, and  tourism would be much less significantly affected.

So countries around the world have begun to offer long-term solutions to the climate crisis. However, even considering currently stated mitigation policies, climate change induced by anticipated levels of warming is expected to:

  • adversely impact the world’s stock of natural assets
  • lead to a significant rise in sea level
  • increase the frequency and severity of extreme weather events

As a result, asset prices fail to reflect these risks and may cost $1 trillion annually starting in 2050, the IMF outlined.

climate crisis risks

Photo by Carolyn Fortuna | 10″ of rain over 2 days caused upheavals to condo communities in SE Florida in late May and early June, 2020.

The IMF makes several suggestions to manage risks from uncertain weather and other climate events.

  • Developing global mandatory climate change physical risk disclosure standards could be an important step to preserve financial stability.
  • Granular, firm-specific information on current and future exposures and vulnerabilities to climate shocks would help lenders, insurers, and investors to better grasp this risk.
  • Climate-change stress testing can provide financial firms and their supervisors with a better understanding of the size of their exposures and the associated physical risk.
  • And, “without a doubt,” the most effective remedy will be strong global policy action to reduce greenhouse gas emissions, address the cause of global warming in a sustainable way, and conferring benefits that extend well beyond the realm of financial stability.

In pursuit of a greener future, we must better understand the connection between climate change and the financial system. Countries with more fiscal space will be able to deploy a swift response to the disaster in the form of financial relief and reconstruction efforts. Also, well-developed risk-sharing mechanisms such as insurance reduce or redistribute the disasters’ losses and limit the impact on domestic equity prices.

 

Advertisement
 
Appreciate CleanTechnica’s originality? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.
 
Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Written By

Carolyn Fortuna (they, them), Ph.D., is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavy Foundation. Carolyn is a small-time investor in Tesla. Please follow Carolyn on Twitter and Facebook.

Comments

You May Also Like

Clean Power

Renewable energy is a viable and vital alternative to fossil fuels, and we must share information about renewable energy's power and promise with others...

Clean Power

Biodiversity is the diversity of life from the level of gene to the level of the ecosystem. The newest IPCC report cites the value...

Climate Change

The IPCC 6 Third Assessment is out. It's not good news.

Fossil Fuels

A climate scientist explains the connection between fossil fuels and war.

Copyright © 2021 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.