Climate change poses both short-term and long-term systemic risks to markets and institutions
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November 28, 2023
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Climate change poses both short-term and long-term systemic risks to markets and institutions

Discover how climate change poses risks to markets and institutions in both the short and long term. Learn more in blog post.

Climate change poses both short-term and long-term systemic risks to markets and institutions, which must be navigated by policymakers and regulators. Supervisors, investors, and other stakeholders have raised their expectations. Financial institutions must adapt to new commercial realities associated with climate risk measurement, management, and reporting. This will contribute to a smooth transition to net zero emissions. It will also help to keep businesses, brands, and reputations alive while also allowing for growth.

15Rock assists its clients in identifying and converting climate risks into opportunities. In this field, we have decades of experience. Since the early 1990s, when catastrophe modeling first appeared, we have been at the forefront of climate risk measurement, and we began working with academic climate modellers in 2019.

Global political dynamics are combining to destabilize existing carbon regulatory regimes. Climate change's risks and opportunities have never been more obvious. However, preparing for this disruptive transition has proven difficult. Our cutting-edge climate data and analytical tools expand on this legacy while complementing our cutting-edge tools for measuring physical, transition, and liability risks. Competitive responses to climate change must go beyond risk assessment. Risk management, capital allocation, and organizational structure must all be thoroughly reconsidered. We help financial institutions take advantage of these opportunities. We help our clients navigate, manage, and thrive in the coming decade.

Significant changes in economic activity and asset values will occur during the global transition to a society with zero net greenhouse gas emissions, and these effects will most likely affect the profitability, solvency, and creditworthiness of financial institutions and their counterparties.

Companies should be wary of relying solely on backward-looking emissions reductions; for example, a past emphasis on reducing emissions may indicate that they are not planning for future climate change. Companies like to take steps to reduce their carbon footprint in order to become more environmentally friendly, but these steps are typically taken without any consideration for the risk of making the transition.

As a result, some firms are particularly vulnerable to the transition (such as those providing services to clients in the oil and gas industry), while others benefit from it (such as those in mining, which produce commodities (such as copper and lithium) that will be required in the net-zero transition).