Stock market investors blind to climate risks

Les investisseurs boursiers aveugles aux risques climatiques

Photo: Pornchai Kittiwongsakul Agence France-Presse
Natural disasters such as the 2011 floods in Thailand have had a devastating effect on the economy.

Investors in the stock markets take no account of the threat posed by climate change, not even on their investments.

The pandemic of sars coronavirus reminds us brutally ” at what point a disruption of economic activity may be rapid and widespread [emphasizing] how important it is to be well prepared and properly assess the risks “, have been observed in a blog post Friday, two of the authors of a new analysis of the international monetary Fund (IMF).

However, the science may predict that climate change will cause an increase in the frequency and severity of natural disasters, such as floods, heat waves or droughts, and they will expose it by the fact even “the economies and the financial markets to shocks of larger magnitude,” there is nothing in the value of the shares of companies most exposed to these calamities does not reflect the greater danger which weighs on them.

It is true that the vast majority of the 350 climate-related disasters that have occurred in the past 50 years in 68 countries has had a relatively ” modest “, as for hurricane Katrina in 2005, with the loss of 2000 lives, a decline of the u.s. economy of 1 % and an effect that is barely discernible on the stock Exchange. But one time out of ten, the shock was much more hard, such as during the 2011 floods in Thailand, which, in addition to some 800 dead, we have seen the economy lose 10 % and the stock markets melt down by almost a third.

And then, this was before the acceleration of global warming, says the IMF in its analysis, attached to the most recent version of its Report on financial stability in the world. According to a study, the worsening of floods in the 136 largest coastal cities will cost it only 1000 billion per year by 2050, if nothing is done.

Myopia financial

And yet, none of these growing threats will not be reflected in the market value in 2019 of the companies most exposed to the human costs, the economic and financial scenarios of climate warming is often mentioned. We do not seemed to know to take into account the effect that can have temperature changes on some economic sectors, nor of any other phenomenon of the same nature. Obviously, says the IMF, ” the equity investors in most economies do not pay enough attention to the climate variables, [and] do not provide sufficient attention to risks related to climate change.”

This myopia is all the more disturbing, ” continues the IMF, that we can consider the stock market as a relatively good reflection of the financial market as a whole. It is distressing, however, not everyone admits it, the costs of long-term debt of the regional governments or municipal higher, in the United States, for those who face the dangers of the increase in the level of the oceans. Perhaps it is because the link between these communities and the threat that weighs on them is more concrete and narrow ? Or because the investors in this area have the habit to see in the longer term ?

Education and transparency

Whatever it is, corrections must be made urgently, ” said the IMF. We observe first that the greater the insurance sector is developed and the pockets of the governments are filled with, the more companies can rely on airbags to cushion the shock in case of hard blow.

Policy makers should address as “the strengthening of the literacy of the financial markets on climate change” by ensuring a wider dissemination of scientific knowledge and by making mandatory the disclosure, by companies, of their factors of climate vulnerability, defined according to international standards. The banks could even be subjected to tests of climatic resistance, as we already did in financial matters.

But ” without a doubt, the most effective solution would be to take strong measures at the global level to reduce greenhouse gas emissions “, noted the experts of the IMF.

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