Published on 10 March 2019

SUSTAINABLE FINANCE

Climate change could provoke a financial crisis similar to 2008

The current climate crisis could provoke a financial disaster. A group of researchers from the Institute for Public Policy Research (IPPR) in the United Kingdom estimate that the link between climate, social and economic risks have been greatly underestimated until recently. According to them, the climate crisis represents the greatest challenge humanity has ever been confronted with and we are not sufficiently prepared.

The next financial crisis will be due to global warming. This is the assertion of several researchers in a study published on 12 February by British think tank, Institute for Public Policy Research (IPPR). The believe that until recently, most studies o
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The next financial crisis will be due to global warming. This is the assertion of several researchers in a study published on 12 February by British think tank, Institute for Public Policy Research (IPPR).

The believe that until recently, most studies on environmental risk “tended to examine threats in isolation: climate scientists examined disruption to weather systems, biologists focused on ecosystem loss and economists calculated potential damages from intensifying storms and droughts", wrote The Guardian which chronicled the study.

A domino effect

These events interact with each other and have multiple consequences for society and the economy. “Under-estimated” until now, a " new, highly complex and destabilised ‘domain of risk’ is emerging,” stress the researchers for whom, record temperatures, biodiversity loss, and the multitude of forest fires and floods only amplify existing social and economic problems.

" In the extreme, environmental breakdown could trigger catastrophic breakdown of human systems, driving a rapid process of ‘runaway collapse’ in which economic, social and political shocks cascade through the globally linked system – in much the same way as occurred in the wake of the global financial crisis of 2007-08,” they write.

The greatest threat to humanity

This is the domino effect. In particular, the viability of financial institutions could be jeopardized by an avalanche of insurance claims caused by hurricanes. On the migration side, Laurie Laybourn-Langton, one of the authors of the study, told the Guardian that the increase in droughts and heat waves could create ten times more refugees in the Middle East and Central and Northern Africa than the 12 million people who left the country during the Arab Spring.

"The combination of global warming, soil infertility, pollinator loss, chemical leaching and ocean acidification is creating a “new domain of risk”, which is hugely underestimated by policymakers even though it may pose the greatest threat in human history.", warned the IPPR. 

To address these challenges, researchers urge policy makers to prioritize these risks. According to them, two global socio-economic transformations are needed: increasing the resilience of infrastructures, markets, and political processes... to address the impacts of global warming and to transform human activity so that it meets ecologically sustainable levels "whilst fighting against inequalities".

Marina Fabre, @fabre_marina


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