Summary of Climate Change and Financial Risk

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Climate Change and Financial Risk summary
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Climate change is becoming a hot topic in the financial world. In this cogent article, IMF experts Pierpaolo Grippa, Jochen Schmittmann and Felix Suntheim provide a broad overview of the economic risks associated with climate change and how the financial sector can help to mitigate them. Their text is clear and accessible, and especially suitable for risk analysts and those interested in learning how climate change is affecting investor behavior.

About the Authors

Pierpaolo Grippa and Felix Suntheim are professionals in the IMF’s Monetary and Capital Markets Department. Jochen Schmittmann is an IMF representative in Singapore.

 

Summary

The financial costs of climate risks remain unknown.

Measuring the financial impacts of climate change is challenging, as most of its prospective costs are outside the scope of traditional analysis. The global shifts in weather patterns present two types of risk: The first is physical, with natural disasters causing direct damage to property and infrastructure. These losses from extreme weather events have been growing, and they are likely to get worse. As a result, property asset values could decline, while insurance coverage will become more expensive or even unavailable. Second, “transition risk” arises from concerted mitigation efforts, such as changes in technology, energy...


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