This year, the World Economic Forum’s Global Risks Report lists climate-related risks at the top:

Climate change is also a huge risk to financial systems. According to the Federal Reserve Financial Stability Report, November 2020:  

“Climate change, which increases the likelihood of dislocations and disruptions in the economy, is likely to increase financial shocks and financial system vulnerabilities that could further amplify these shocks.” 

The 2020 World Economic Outlook’s Chapter 13, Mitigating Climate Change, written by the International Monetary Fund, states that if we don’t change policies and decrease carbon emissions:

“…carbon emissions will continue growing strongly, leading to temperature increases well above the safe levels agreed to in the Paris Agreement and raising the risk of catastrophic damage for the planet.”

What does “catastrophic damage” look like? Further detailed by the WEO:

  • lower productivity due to changes in the yield of agricultural crops and fish farming and hotter temperatures for people working outside 
  • more frequent disruption of economic activity and greater physical destruction of productive capital, infrastructure, and buildings as a result of more frequent and severe natural disasters (for coastal areas) the rise in sea levels
  • deterioration of health and possible loss of life due to natural disasters and increased prevalence of infectious diseases; and diversion of resources toward adaptation and reconstruction
  • various changes that global warming is setting in motion, such as the melting of the ice caps and rise in sea levels, and the acidification of oceans could themselves reinforce global warming and would be very hard to reverse over human timescales

Think about it; if climate and clean energy laws are put in place, so-called “reserves” that fossil fuel companies have had on their balance sheet as assets for future use will suddenly become worthless. According to GreenBiz:

“The numbers are sobering: A dramatic drop in oil prices could cause a huge “carbon bubble” built on long-term investments to burst. According to a 2018 study, the equivalent of between $1 trillion and $4 trillion could be wiped off the global economy in fossil fuel assets alone. By comparison, a loss of “just” $250 billion triggered the crash of 2008.”

We cannot have a world where we burn up these fossil fuel reserves and have a viable future. Many large financial organizations have warned investors and are starting to require that publicly traded companies disclose their financial risk exposure; a bill was introduced in 2019,  Deloitte already published a guide for companies to use to disclose climate risk, and certainly it’s only a matter of time until these requirements are mainstreamed. Many organizations are divesting from fossil fuel investments to get the risk off of their financial statements.