Risks on global financial stability induced by climate change: the case of flood risks

We show that the magnitude of global risks is determined by the interplay between the exposure of countries to climate-related natural hazards and their financial leverage

Antoine Mandel; Timothy Tiggeloven; Daniel Lincke; Elco Koks; Philip Ward; Jochen Hinkel

2021

Scholarcy highlights

  • There is increasing concern among financial regulators that changes in the distribution and frequency of extreme weather events induced by climate change could pose a threat to global financial stability
  • We show that the magnitude of global risks is determined by the interplay between the exposure of countries to climate-related natural hazards and their financial leverage
  • Climate change induces a shift in the distribution of impacts towards high-income countries and larger amplification of impacts as the financial sectors of high-income countries are more leveraged
  • In high-end climate scenarios, this could lead to the emergence of systemic risk as total impacts become commensurate with the capital of the banking sectors of countries that are hubs of the global financial network
  • Adaptation policy, or the lack thereof, appears to be one of the key risk drivers as it determines the future exposure of high-income countries
  • This implies in particular that the avoided costs in terms of financial stability should be weighted in as benefits of adaptation policy

Need more features? Save interactive summary cards to your Scholarcy Library.