This wide ranging and impressive report addresses two distinct but interconnected dimensions of climate impacts, each relevant to different decision-makers: (1) economic impacts affecting financial asset values and portfolio performance over investment horizons, and (2) broader social and human welfare impacts, including mortality, health burdens, inequality, ecosystem degradation, and quality of life. The first is directly relevant to pension funds, institutional investors, financial regulators, and central banks using climate scenarios for stress testing. These include GDP losses, capital destruction, productivity declines, and disruptions to revenue streams that translate into asset price changes.
Specifically, this report addresses several shortcomings in current approaches to forecasting economic impacts, which analysts at government treasuries and economic advisory agencies may find particularly constructive. The second point is the primary concern of policymakers, governments, and civil society, particularly regarding vulnerable populations and distributional justice.
While these audiences have distinct mandates, we argue they cannot be cleanly separated in climate risk assessment for three reasons: (1) social impacts become economic impacts, (2) fiduciary duty extends beyond pure returns – and increasingly so -, and (3) current models systematically miss material risks by excluding social dimensions. Ultimately, climate change carries systemic risks that – when taken together – threaten the long-term financial stability that supervisors and regulators across the globe have a mandate to protect.
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