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Climate Change: Financial risks management and opportunities

Ligkounakis Emmanouil

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Summary

The urgent transition to a low-carbon economy will radically change our economy. Households, governments, companies and financial intermediaries need to be ready to face the upcoming risks and take advantage of the opportunities created by climate change. In this paper, the financial landscape will be thoroughly analyzed regarding climate transition. More specifically, it will focus on the causes and consequences of climate change, climate risks and their impact on the financial sector, the mitigation and adaptation policies to be followed by the various states and companies for a smoother transition and the investment landscape that is shaped according to aftermath of climate change. Climate change mitigation and adaptation policy faces many challenges as well as opportunities. The results of many studies have shown that economic development has significantly contributed to the increase in greenhouse gas emissions and remains the main challenge in all country groups. Climate change could put the global financial system at risk, taking into consideration two separate risk dimensions, physical and transition risks. Therefore, there is a growing pressure from supervisory and regulatory authorities to integrate climate risks into the risk assessment and management of banks and other financial institutions as a measure to adapt to climate change. Of course, climate change does not only pose a negative risk, it also opens up opportunities. Banks and other entities are also evaluating the growing opportunities and supporting their exploitation. Their purpose is to make attractive and finance the required investment activities in green and sustainable projects in order to enable a smooth transition to a low-carbon world. Energy efficiency and the share of energy consumption from renewable sources are the main opportunities of climate change policy because they reduce greenhouse gas emissions in all country groups. Thus, technological processes, increasing energy efficiency and switching from coal to renewable energy sources are the main tools of climate change policy implementation in all countries despite the different stage of economic development.

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