Finance & economics
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 (or 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.
英國央行(Bank of England)前行長馬克·卡尼(Mark Carney)早在2015年就警告過氣候變化帶來的金融風險。
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.”
But progressive Democratic politicians are calling on President Joe Biden not to reappoint Jerome Powell as the chairman of the Federal Reserve, partly because they think he has done too little to eliminate climate risk.
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.