Financial instability in the Anthropocene: Understanding climate risk and regulatory reactions – Part I

by Alexander C Reay

Instability is a seemingly inherent characteristic of the international financial system (IFS). Over the past 100 years alone we have regularly seen the system teeter on the brink of collapse as a result of rampant speculation, capital flight and subprime mortgages. Each crisis has in turn damaged and constricted real economic growth, undermining the prosperity of the public. As far as human-induced crises go, climate change threatens to be our magnum opus, not least for its financial impacts. For while the crisis is primarily perceived as an ecological one, in truth it is also of a financial nature. The systemic change that solving the crisis requires, and that the unavoidable environmental changes will precipitate, will inevitably combine to create a cocktail of pressures on the IFS. In turn, these pressures threaten to undermine the stability of the IFS, sending it into yet another crisis, and devastating its ability to effectively allocate resources, risking the potential that we will be dealing with a dual crisis of climate and finance.