Effects of Climate Change on Financial Sector

Effects of Climate Change on Financial Sector
Abstract
Burning hydrocarbon e.g. fossil fuel emits carbon dioxide and other greenhouse gases like methane. Nature has its own ways of absorbing these green house gases. But since Industrial age we have been emitting green house gases at a higher rate than the capacity of nature’s sink. These green house gases trap heat, affecting the environment and ecosystem in numerous ways.

Figure   [ 1 ]: Historic Atmospheric CO2 Concentration (ppm) for 1,000 Years
The preindustrial carbon dioxide concentration in atmosphere of around 280 ppm has risen to current level of 386 ppm. The Intergovernmental Panel on Climate Change (IPCC) project CO2 concentrations in 2100 ranging from 540 to 970 ppm. This will lead to an increase in temperature of 1.5 to 5.8 degree Celsius. Due to this rise in temperature sea level will increase by 0.09 to 0.88 meters because of thermal expansion and loss of ice from glaciers and ice caps. This will upset the finely balanced global climate system causing ever increasing number of extreme weather events like storms, draughts and floods. Rapid action has to be taken to reduce this GHG emission so as to protect our environment, ecosystem, socio-economic and political stability of several countries.
In this article an effort has been made to identify the effects of climate change on macroeconomics, capital markets and financial and actuarial sectors.
Effect of climate change on Financial Industries
Climate change will lead to uncertain extreme weather events in future. It will affect the socio-economic balance of human societies, trade and commerce, availability and allocation of capital, corporate strategies and financial policies of Governments.
Sectors with Potential Physical Risk
The sectors which are very sensitive to climate change are Agriculture, Forestry, Fisheries, Healthcare, Insurance and reinsurance and Real Estate.
Insurance, Re-Insurance, Life Insurance and Pension
Climate...