Climate Change and Financial Risk

The financial costs of climate risks remain unknown.

Measuring the financial impacts of climate change is challenging, as most of its prospective costs are outside the scope of traditional analysis. The global shifts in weather patterns present two types of risk: The first is physical, with natural disasters causing direct damage to property and infrastructure. These losses from extreme weather events have been growing, and they are likely to get worse. As a result, property asset values could decline, while insurance coverage will become more expensive or even unavailable. Second, “transition risk” arises from concerted mitigation efforts, such as changes in technology,&#...