Will climate change cause the next financial crisis?

As extreme climate events become more frequent and governments ramp up their commitment to transitioning to lower carbon economies, are financial institutions prepared, or will their unaccounted-for climate risk lead to the next financial crisis? Silvia Pavoni reports.

by Silvia Pavoni

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If the world’s latest financial crisis was sparked by something highly intangible – that is mortgage-backed securities – the cause for the next one could be very physical. Melting glaciers, rising temperatures and earthquakes are new types of threats the financial system still struggles to measure and account for. As with the previous crisis, the occurrence of unlikely scenarios could lead to financial chaos.

Warnings of such risks are now coming from the highest echelons of the financial community. One of the first came from Bank of England governor and chairman of the Financial Stability Board (FSB) Mark Carney in a speech to insurers at Lloyd’s of London in late September 2015.

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Silvia Pavoni

Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.