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Macroscope | Climate financial risk is real and, like in 2008, the deniers are wrong
- Unlike the 2008 global financial crisis – when banks were bailed out and global financial regulation overhauled – unmitigated climate change will lead to a crisis with irreversible outcomes. Climate-related financial regulation is urgently needed
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In a recent commentary, John H. Cochrane, a Hoover Institution senior fellow, argues that “climate financial risk” is a fallacy.
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His premise is that climate change doesn’t pose a threat to the global financial system because it, and the fossil fuel phase-out needed, are developments everyone knows are under way. He sees climate-related financial regulation as a Trojan horse for an otherwise unpopular political agenda.
We disagree. For starters, one should acknowledge the context in which regulation emerges. The Intergovernmental Panel on Climate Change’s sixth assessment report concludes with a high degree of certainty that the Earth’s climate is changing because of human activity.
Unlike the 2008 global financial crisis – when banks were bailed out and global financial regulation overhauled – unmitigated climate change will lead to a crisis with irreversible outcomes.
The question, as Cochrane puts it, is whether climate-related financial regulation can help avoid such outcomes. Although the answer is complex and currently incomplete, we argue that it can. Financial regulation to mitigate climate risk is worth pursuing; the stakes are too high to let the perfect become the enemy of the good.
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