Thread by @MLiebreich

After 2 days of negotiation, G20 finance ministers agree that "the FSB is examining the financial stability implications of climate change." At the G20 Energy Ministerial in Argentina, we did no work on energy, just discussed the communiqué. US leadership.
uk.mobile.reuters.com/article/amp/id…

Since you ask, I suspect the Financial Stability Board will conclude climate change poses little systemic financial risk. 1) Per IMF, an individual climate disaster may wipe 0.4% off GDP growth for the countries affected for one year. Globally modest compared to Coronavirus.

2) The catastrophic physical risks - multiple disasters in one year, disasters that span whole continents are not likely for several (or many) decades. I know that's not the @ExtinctionR line, but it's what the @IPCC_CH says and it's also my reading of the science.

2a) Just to be clear, that's not a reason not to act on climate change, far from it: the multiple lags in the system are what makes it so dangerous. It's just a comment on when systemic climate impacts are likely to hit, and the implications for stability of the financial system.

3) So, transition risk. Y'all now I think thd transition is gathering speed, maybe via a #RenewableSingularity. And it will result in stranded assets. Figures like $1tr, $2tr being thrown about. Thing is - these are small in relation to the $240tr of global financial capital.

3a) Obviously the caveat here is debt levels. Were the direct or indirect owners of stranded assets to be leveraged and cross-leveraged, there is a contagion mechanism for financial crash. That's probably where the FSB should focus: restrict debt to fossil fuel owners/investors.

3b) Also, re transition risk: lthough the destination of the transition may be obvious, don't forget, governments control the rate of transition, so if it looks like stranding too many assets or people, they can slow it down. Look at Germany's 2038 date for coal exit. Or the US.

3c) Similarly, the risk posed by a sudden imposition of a carbon tax. A global carbon tax or price is not on the cards; yes, an incoming administration can impose one; no, it would not pose material risk across a diversified economy; and it would likely be phased in over time.

4) So that leaves liability risk. I dealt with that in my recent piece on climate lawsuits for @BloombergNEF. TLDR, yes, liability risk is very real, but not existential for the fossil fuel sector, and therefore unlikely to pose a systemic financial risk.
about.bnef.com/blog/liebreich…

@BloombergNEF 5) So the fossil sector won't cause a crisis. Could real estate, where leverage is endemic, cause a climate crash? Probably not, since sea level rise under RCP4.5 (where we are headed, since we know #RCP85isBollox) is only 33cm to 63cm *this century*. Local but not global issue.

@BloombergNEF 6) Two systemic risks that really do worry me are i) collapse of oil-producing countries into failed states. This seems pretty inevitable, and could challenge the financial system; ii) emergent fragility caused by coupling multiple complex critical systems, with no fire breaks.