Global Crisis highlights failure to account for Global Risks
What do the coronavirus pandemic and climate breakdown have in common? They both present a huge threat to global financial stability, stemming from massive global negative externalities rooted in ecological change. They both entail dramatic economic, financial and social damage. And, despite continued warning of their certainty from scientists, we have failed to systematically consider the huge cost of these predictable events and integrate them into risk frameworks.
This week the Bank for International Settlements (BIS) followed up on their recent e-book, Green Swan, analysing the financial instability and risk implications of the climate crisis, with a paper drawing out lessons from Covid-19 on efficiency versus resilience.
The paper calls for more global co-ordination and local co-operation to mitigate and prevent global risks. With Green Swan risks presenting global, complex and interlinked effects, no single state or actor can find their solution.
As well as calling for cooperation on risk modelling, the paper also highlights the need to change the methodologies and mindsets dealing with global risks – including the need to price risk buffers into business as usual. This could mean a stronger focus on resilience, prevention and, especially, insurance, rather than production efficiency.
Finally, the paper cautions that the Covid-19 crisis, if approached in the right way, could act as a catalyst to help economies prepare for future, similarly giant but inevitable, “Green Swan” climate risks.
Read more here.