Weather changes caused by climate change are wreaking havoc on property worldwide, threatening the insurance industry and the global financial system that depends on it. In a new article in Foreign Policy magazine, history professor and director of the European Institute at Columbia University Adam Tooze considers the role central bankers could play in directly addressing these issues. Tooze is also the author of Crashed: How a Decade of Financial Crises Changed the World, published last year.
Since the 1980s, Tooze says, central bankers have been the primary economic decision-makers across the globe. In 2017, these bankers founded the Network for Greening the Financial System (NGFS) in an effort to back the Paris climate agreement by bringing financial institutions’ support. Most central banks in the G-20, including the People’s Bank of China and the European Central Bank, are members.
“Private financial actors have also joined the green finance bandwagon,” Tooze reports. “At the One Planet Summit in New York City in 2018, 23 leading global banks, eight of the top 10 global asset managers, the world’s leading pension funds and insurers, the two preeminent shareholder advisory service companies, and other major financial firms—which are together responsible for managing almost $100 trillion in assets—committed themselves to the transparency principles of the blue-ribbon Task Force on Climate-related Financial Disclosures, which was launched by (Mark) Carney (Governor of the Bank of England) in his capacity as head of the Financial Stability Board and is chaired by Michael Bloomberg.”
Now that we’ve got most of the world’s institutional financial leaders at the table, one of the biggest threats they must address is the threat climate change poses to industrialized and developing nations alike. To date, Tooze says, these leaders have focused on managing financial risk, and he calls on them to really “green the agenda” to overtly address the changes economies need to make to stop the climate threats. Moving away from fossil fuels is essential, and we see no political will to take that on, but eventually there may be no choice.
Changes in the insurance industry make that clear. As floods, fires and other natural disasters increase in size and scope because of climate change, who foots the bill for all we’re losing?
“As the former CEO of AXA insurance group warned,” Nooze explains, “referring to potential changes in average annual temperatures, whereas ‘a [2 degrees Celsius] world might be insurable, a [4 degrees Celsius] world certainly would not be.’ Without the ability to insure against catastrophic loss, the global credit system as we know it would simply cease to function.”