Abstract
Abstract Fighting climate change is one of the biggest challenges in the 21st century. Climate change that leads to global warming has been increasingly visible in our environment. Extreme weather conditions such as hurricanes, floods, and droughts have been escalating and their acceleration can be expected in the future. They cause changes in sea levels, epidemics, large fires, etc. Increasingly, we are witnessing minor or major damage caused by these extreme weather conditions. Numerous studies have proven that climate change has negative impact on economic growth and prosperity. However, this paper starts from the premise that in addition to unequivocally identified threats, climate change also creates opportunities. The paper reaches a conclusion that climate change can adversely affect balance sheets of financial institutions. Therefore, climate change is a source of financial risk and thus a part of the mandate of central banks and supervisors in preserving financial stability. This type of risk has not been given enough attention by either supervisors or financial institutions over the past period. This paper develops a model for managing financial risks as a result of climate change.
Highlights
Global temperatures have risen over the last half century at an unprecedented pace in the last twenty thousand years.28 Journal of Central Banking Theory and PracticeThe concentration of greenhouse gases is at a level not witnessed in the past eight hundred thousand years
This paper develops a model for managing financial risks as a result of climate change
Climate change affects economic well-being through many channels: declining agricultural yields, declining productivity of workers exposed to rising temperatures, escalating health care costs, physical destruction of capital as a result of fires, floods and rising sea levels, losing biodiversity and adverse spillovers from affected countries
Summary
The concentration of greenhouse gases is at a level not witnessed in the past eight hundred thousand years. Everything suggests that further global warming will largely depend on our ability to restrain greenhouse gas emissions as its main cause Even this year’s coronavirus pandemic can be explained by climatic factors if the assumption made by most doctors and the WHO is accepted that this is a virus that has been passed from animals to humans. The Europe Investment Plan was created for this purpose and it is supposed to mobilize 1 trillion euros in the 10 years Another important role is that of the Network for the Greening Financial System (2018) which brings together central banks and supervisors on a voluntary basis and issues recommendations which are not binding but are aimed at inspiring all central banks and supervisors and relevant stakeholders to take the necessary measures to foster a greener financial system.
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