fbpx ...

Powering Net Zero Commitments

US economy will suffer irreparable damage due to climate inaction: Major US Financial Institutions’ Report

Unless urgent steps are taken to curb climate change the US economy will suffer irreparable damage.

This is the stark warning from a report compiled by a group of 38 professionals representing expertise in finance, investments, insurance, climate change, environmental risk management, real estate, and includes several special government employees. A major oil company is also part of the group.

Called, Managing Climate Risk in the US Financial System, the 196 report warns that, ‘’Climate change poses a major risk to the stability of the US financial system and to its ability to sustain the American economy.”

In other words, climate change is not only ravaging large swathes of nature, it’s also in the process of destroying the economy and economic infrastructure.

The report, initiated by the US Commodity Futures Trading Commission (CFTC), goes on to say “… financial regulators must recognize that climate change poses serious emerging risks to the US financial system, and they should move urgently and decisively to measure, understand, and address these risks.’’

What’s of utmost concern is that climate change is having a major impact on financial markets, real estate, insurance, and infrastructure.

The report finds that an economy-wide price on carbon must be put in place at a level that reflects the true social cost of those emissions. Only then will financial markets be able to channel resources to reduce greenhouse gas emissions.

Disturbingly, the authors found that markets are not taking the risks that climate change poses into account.

“Evidence is accumulating that markets are pricing in climate-related risks imperfectly, and sometimes not at all,” write the authors, adding that research suggests that climate risk is currently under-priced in some markets and that climate-exposed financial assets may be overvalued.

In other words, climate change and its risks are not properly assessed by the financial markets.

The fear is that ‘’a sudden revision of market perceptions about climate risk could lead to a disorderly repricing of assets, which could in turn have cascading effects on portfolios and balance sheets and therefore systemic implications for financial stability.’’

The authors recommend that the United States establishes a price on carbon. “It must be fair, economy-wide, and effective in reducing emissions consistent with the Paris Agreement.’’ This, the authors say, is the single most important step to manage climate risk and ensure the appropriate allocation of capital.

President Donald Trump famously withdrew the US from the Paris Agreement in 2017.

In addition, the pandemic has put unprecedented stress on financial markets. The long-term result is likely to be prolonged fiscal deterioration, stressed business balance sheets, and depleted household wealth, say the report writers.

In this context, the authors say, the management of risks related to climate change becomes even more urgent.

The authors point out that financial regulators are not equipped to develop the policies needed to effectively address climate change, the most important of which is effective carbon pricing. The financial industry can warn about the results of failing to act, but the action must come from congress.

Share this article on your social networks

Related Posts

Greenhouse Gas Emissions by Country: Understanding the Global Impact

Greenhouse gas emissions by country: Understanding the global impact. In this article, we will take a closer look at the top greenhouse gas emitting countries, sources of emissions, and efforts being made by countries to reduce emissions through increasing the use of renewable energy and improving energy efficiency.

Read More
GHG Reporting: Understanding and Mitigating Greenhouse Gas Emissions

Greenhouse gas (GHG) reporting is the process of measuring, reporting, and ultimately reducing an organization’s emissions. In this article, we will explore the basics of GHG reporting including its importance in understanding and reducing emissions, the process of GHG reporting, the standards and protocols available, and the challenges that organisations may face

Read More
5 key takeouts from the new IPCC Climate Report

The most recent 3.675 pages IPCC report has been hailed as the most searing indictment of the planet’s climate predicament. Here are 5 key takeouts.

Read More
Overwhelming majority of Australians look to Brands to make a climate difference

The research, released today at Nine’s State of the Nation Sustainability virtual event, showed that despite everyday Australians making changes to live more sustainably, the majority feel that as a country, we are not doing enough, and brands need to lead the way.

Read More
67% of retail investors now prefer ESG investments

According to new research from behavioural finance experts, Oxford Risk, two out of three retail investors are considering transferring their investments into ESG propositions.

Read More
Massive and rapid swing. 75% of Australian businesses leaders believe world is at climate change tipping point: Deloitte Report

Australian business leaders are becoming a lot more concerned about climate change. This shift is according to a new report and it shows a significant shift in opinion in just 8 months.

Read More
Climate Impact Measurement and Disclosure Growing Quickly Among Businesses

Many of the world’s biggest organisations have begun to share information concerning their carbon footprint in a new move that embraces transparency as organisations are increasingly seeing value in measuring their impact.

Read More
Explosive research for Australian businesses: people are turning down high paying jobs for 1 surprising reason

employed by a company that did not do its part to address climate change.

Read More
Australia Ranks Last Out Of 60 Nations For Climate Crisis Response Policy

Australia’s government policy response to the climate crisis was ranked last in an assessment of 60 nations released at the current global climate summit in Glasgow

Read More