Climate change could ignite a financial crisis — IMF official

A senior International Monetary Fund official has said that climate change poses serious risks to the stability of the financial system.

Tobias Adrian, director of the IMF’s monetary and capital markets department, said the climate crisis could “absolutely” ignite a financial crisis.

“The climate crisis is slow in the making, but it’s potentially disastrous,” Adrian said in an interview from the sidelines of the Green Swan Conference, a virtual event focused on how the financial industry can take action against climate risks.

Adrian, a former official at the New York Federal Reserve Bank, pointed to how the economies of the Bahamas, Philippines and other nations have been crushed by hurricanes and typhoons in recent years.

“There are many countries where you see the climate catastrophe is catastrophic for the financial system,” he said.

“Even if you don’t believe it’s the central scenario, there is still quite a bit of downside risk. And risk management is all about making sure that even in the worst cases, you are able to survive.”

The comments echo a warning made last September in a federal report that acknowledged “climate change poses a major risk to the stability of the US financial system and to its ability to sustain the American economy.”

The report, published by the climate subcommittee of the US Commodity Futures Trading Commission, implored regulators to “more urgently and decisively” work to address looming economic damage from climate change.

In March, researchers at the Federal Reserve wrote in a report that climate-related economic or financial risks may not necessarily impact financial stability, though they acknowledged that is a possibility under certain scenarios.

“Storms, floods, wildfires or other acute hazards can quickly change or reveal new information about the economic outlook or the value of financial assets,” the Fed report said.

Activist investor ousts at least two Exxon directors in historic win for pro-climate campaign
Activist investor ousts at least two Exxon directors in historic win for pro-climate campaign
“Climate risks can manifest as shocks to the financial system,” the researchers wrote.

The Fed researchers added that economic and financial risks can amplify one another, for example if weather-related property destruction sparked bank losses that led to less lending and reduced investment.

“With the potential for sudden, large shifts in perceptions of risk, chronic hazards could produce abrupt repricing events, if investor expectations or sentiment about the physical risks change abruptly,” the report said, adding that more research is needed to better understand these risks.