Quantcast
Environmental News for a Healthier Planet and Life

Help Support EcoWatch

Climate Crisis May Cause the Next Financial Crisis

Climate
Climate Crisis May Cause the Next Financial Crisis
If temperatures continue to rise, the world is at risk from global sea-level rise, which will flood many coastal cities as seen above in Bangladesh. NurPhoto / Contributor / Getty Images

The mounting climate emergency may spur the next global financial crisis and the world's central banks are woefully ill equipped to handle the consequences, according to a new book-length report by the Bank for International Settlements (BIS), as S&P Global reported. Located in Basel, Switzerland, the BIS is an umbrella organization for the world's central banks.


The report, titled The Green Swan, which plays on the idea of a "black swan" even warned that the climate crisis could have a potentially seismic effect on the world's financial system and that central banks do not have the tools to handle it, as Reuters reported.

"Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us," François Villeroy de Galhau, governor of the Banque de France, said in the report, as The New York Times reported.

The world's markets are in a bind. To limit global warming to less than 1.5 degrees Celsius requires leaving a large proportion of fossil fuel reserves in the ground, which creates a potential risk for the value of energy companies and the broader financial system. Yet, extracting those fossil fuels will almost surely push the world past the 1.5 degrees Celsius threshold, as S&P Global reported.

If temperatures continue to rise, the world is at risk from global sea-level rise, which will flood many coastal cities, while brutal droughts will make other parts of the world uninhabitable, as Reuters reported.

Already, the world has the number of extreme weather events quadruple of the last four decades. The report warns that the financial markets are not protected against climate-induced losses. Only 44 percent of the write-downs caused by extreme weather events are now covered in the U.S. In Asia it's just 8 percent and in Africa only 3 percent, according to Reuters.

"I think we might be on the brink of observing something that might be behind the next systemic financial crisis," Luiz Awazu Pereira Da Silva, one of the book's main authors, told reporters, as Reuters reported.

The report also warned that central banks, which spent the last decade pulling their countries out of a deep financial crisis, may spend the next decade coping with disruptions from the climate crisis, as The New York Times reported.

The paper warned that central banks may be called on to bail out many communities that are devastated by climate emergencies.

"In the worst-case scenario, central banks may have to confront a situation where they are called upon by their local constituencies to intervene as climate rescuers of last resort," the report said. "Fundamentally, climate-related risks will remain largely uninsurable or unable to be hedged as long as system-wide action is not taken."

The European Central Bank is starting to grapple with climate-related issues, according to The New York Times. The new president of the European Central Bank has pledged to put the climate crisis at the forefront of the bank's decisions.

"While we might not be ahead of the curve yet, we are not sitting on our bottoms doing nothing," Ms. Lagarde said during a news conference on Thursday, as The New York Times. "It is going to be an important matter that will be debated during the strategy review."

She noted that bank's employee pension fund is shifting investment to companies with lower carbon dioxide emissions.

Environmental activists who have campaigned to divest from fossil fuels took to Twitter to highlight the report's findings. Bill McKibben, the founder of 350.org, rewrote The New York Times headline "Climate Change Could Cause the Next Financial Meltdown." Instead, he edited it to, "Financial Systems Could Cause the Next Financial Meltdown," as Common Dreams reported.

"Since the banks fund the fossil fuel system, this is really a way of saying 'Financial systems Could Cause the Next Financial Meltdown.' Unless we #stopthemoneypipeline," McKibben tweeted.

The report, to its credit, noted that a new level of global cooperation is required, as Reuters reported.

"A new global financial crisis triggered by climate change would render central banks and financial supervisors powerless," the BIS said. "We cannot be the only game in town."

People Have the Power - VOTE 2020

Climate-action nonprofit Pathway to Paris first launched in 2014 with an "intimate evening" of music and conversation after the People's Climate March in New York City.

Read More Show Less

EcoWatch Daily Newsletter

Heo Suwat Waterfall in Khao Yai National Park in Thailand. sarote pruksachat / Moment / Getty Images

A national park in Thailand has come up with an innovative way to make sure guests clean up their own trash: mail it back to them.

Read More Show Less

Trending

The 2020 presidential election poses a critical test of climate conservatives' willingness to put their environmental concerns before party politics. filo / Getty Images

By Ilana Cohen

Four years ago, Jacob Abel cast his first presidential vote for Donald Trump. As a young conservative from Concord, North Carolina, the choice felt natural.

But this November, he plans to cast a "protest vote" for a write-in candidate or abstain from casting a ballot for president. A determining factor in his 180-degree turn? Climate change.

Read More Show Less
Headquarters of the World Health Organization in Geneva amid the COVID-19 outbreak on Aug. 17, 2020. FABRICE COFFRINI / AFP via Getty Images

The World Health Organization (WHO) announced Monday that 64 high-income nations have joined an effort to distribute a COVID-19 vaccine fairly, prioritizing the most vulnerable citizens, as Science reported. The program is called the COVID-19 Vaccines Global Access Facility, or Covax, and it is a joint effort led by the WHO, the Coalition for Epidemic Preparedness Innovations (CEPI) and Gavi, the Vaccine Alliance.

Read More Show Less
Exterior of Cold Tube demonstration pavilion. Lea Ruefenacht

By Gloria Oladipo

In the face of dangerous heat waves this summer, Americans have taken shelter in air conditioned cooling centers. Normally, that would be a wise choice, but during a pandemic, indoor shelters present new risks. The same air conditioning systems that keep us cool recirculate air around us, potentially spreading the coronavirus.

Read More Show Less

Support Ecowatch