Climate change on financial agenda - a tragedy of the horizon?

Credit: Desmond Tutu Peace Foundation

It is important that we recognise our financial stability is highly dependent on environmental stability. “The growing international consensus that climate change is unequivocal” said Mark Carney, the governor of the Bank of England, in his speech to the insurance market Lloyd’s of London last month. He reassured his statement with solid research evidence on environmental change (speech by Carney, Bank of England):

• In the Northern Hemisphere the last 30 years have been the warmest since Anglo-Saxon times; indeed, 8 of the 10 warmest years on record in the UK have occurred since 2002
  
• Atmospheric concentrations of greenhouse gases are at levels not seen in 800,000 years;
  
• The rate of sea level rise is quicker now than at any time over the last 2 millennia.

Also on insurance industry:

• Since the 1980s the number of registered weather-related loss events had tripled
  
• Inflation-adjusted losses for the insurance industry had increases five-fold to $50 billion (£33 billion) a year

Carney also warned that the current rate of climate change will eventually lead to financial instability in three ways, including physical risks such as increasing insurance claims from natural hazards; liability risks that arise from compensation responsibility; and transition risks caused by revaluation of assets caused by the adjustment to lower-carbon economy, which all ultimately lead to lower standard of living, unless the world’s leading countries are willing to adjust their current and future carbon emissions (speech of Carney, Bank of England).

Climate change is impacting the world economy beyond the field of insurance. Dynamic weather conditions hamper ecosystem services to function properly and therefore create food and water security problems; people are migrating to or investing in countries which are more economic resilient to exogenous shocks such as natural disaster (countries that are prone to natural disasters are likely to experience intensified cases under the impact of climate change), causing global impacts on property assets, international migration and political stability. These all have effects on the world’s financial stability and thus, our living standards and well-being (the guardian).

Although reducing GHGs emissions or altering fossil fuel economics suggested in The G20 Seoul Summit Leaders’ Declaration might help to slow down global warming, environmental stability maintenance requires regular management not only on climate change, but also on the other eight Earth systems as well (Earth Systems). Other anthropogenic activities such as deforestation and overfishing are proved to be the drivers of environmental degradation, which also leads to ecosystem services malfunction and environmental change. As such, the world financial institutions should not confine their solution scope only to carbon emissions, but also to take responsibility of their exploitative activities in the wild nature, applying market incentives to environment conservation for instance, before the “recent weather events proved to be the new normal”.