Last week, for the first time ever, the Bank of Canada released a report examining the threat climate change poses to the country’s financial system and economy and concluded that physical risks from disruptive weather events and transition risks from adapting to a lower-carbon global economy make economic activity and the environment inherently intertwined. See Climate change threatens ‘both the economy and the financial system’ says Bank of Canada:
Another risk posed by climate change is infrastructure damage due to more extreme weather, such as fire and floods. A side effect of that is the exploding cost of insurance claims.
That impact on insurance companies has been the focus of the Office of the Superintendent of Financial Institutions, which regulates Canada’s banks, insurance and trust companies and pension plans.
But experts argue that the economic threats facing Canada go well beyond the physical impacts of climate change — that a resource-dependent economy is vulnerable to an eventual consumer-driven shift away from fossil fuels.
The implications for companies and investors are huge both in terms of mounting liability costs for harm companies have, and are, inflicting, as well as higher producer responsibility and full cost accounting, likely to reduce earnings and free cash flow for things like dividends and share buybacks.
Already these issues are shifting where investors and pensions place capital as well as regulatory changes aimed at constricting corporate practices and requiring more transparent financial reporting to the public.
This important article: Why the future of the global economy is about climate change is longer than a tweet but the time invested is worthwhile. New terms of reference and language are part of the necessary changes underway:
“Our entire monetary and financial system as a globe has to change to reflect the simple truth that are only really just as a species borrowing from the planet — and if we don’t repay that debt, with interest, we will end broke, as a civilization: collapsing into authoritarian-fascism, as we grow ever poorer, running out of resources, at each others’ throats”.
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