9 Managing Financial Risks in Urban Environments

Abstract

AbstractFinancial risks relating to the environment are frequently concentrated in cities, both in the source of risks and in the management of those risks. Urban areas are prone to a number of environmental concerns including brownfield biodiversity, flooding, and potential relations to climate change, and the effects of ‘everyday’ environmental changes, for example the weather, on productivity. Managing these risks will frequently be found in the city too through mainstream financial institutions like banks and insurers that seek both physical and financial protection for themselves and their clients from the worst environmental effects. One clear example is decision-making about the Thames Barrier in London, which aims to protect the financial heartland of the UK from severe flooding. At the same time, in nearby offices, a wide range of new products are being created to manage these urban environmental risks, including diverse catastrophe bonds, weather derivatives, and global warming indexes. This chapter explores the range of financial risks emerging from environmental changes and the ways in which these are being managed. This brings together both an appreciation of the nature of these risks as well as a financial focus on environmental risks. Relatively little has been written in geography on these products and this chapter provides an overview that is both introductory, but also based on contemporary research on these issues that addresses much deeper questions. If environmental risks are to be successfully managed, then it is clear that there will need to be an appreciation of the raft of financial responses, both current and potential, that will be introduced by companies to achieve this.