The heads of two major European central banks issued an open letter recently warning that climate change poses a significant financial risk to the global economy. The letter was co-signed by the Network for Greening the Financial System (NGFS), a group of 34 central banks, and emphasizes that the economic effects of climate change are already being felt globally.
Severe financial disruption—including a new financial crisis—could be part of that mix, according to Eric Orts, a Wharton professor of legal studies and business ethics.
Why are central bankers so interested in climate change issues? One reason is that serious effects from climate change now look much closer to the horizon than recently thought, says Orts, who is also director of Wharton’s Initiative for Global Environmental Leadership. Not long ago—when big climate trouble appeared to be 30-50 years away—there was little interest from bankers. Now, impacts are visible and “the window for making a significant transition in order to avoid radical crashes in the world, including financial crashes, is 10 to 12 years.” Given that central banks are responsible for financial stability, there is a newfound focus.
Read more at Knowledge@Wharton.
