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Whenever people tell me that climate tipping points are dangerous for financial stability - which is often - my reaction rarely changes: How is that supposed to work? The reality is that the potential impact of tipping points on the behavior of financial investments hasn't been considered very deeply, mainly because tipping points are not shocks in the traditional sense and because they often play out over very long periods of time. The linked article is my first attempt to dig down on this question. After some introductory remarks, I consider the effect of irreversibility - a common feature of tipping points - on the value of options. While you're on the site, flip through the range of articles that are available to subscribers. You'll gain insights on financial climate risk you won't find anywhere else. #climaterisk https://lnkd.in/erCnhtfm

Climate tipping points threaten financial stability, right? While many make this assertion, we should pause to question how this might manifest in the actions of investors. Here, Tony Hughes, Ph.D. explores option pricing with a focus on a critical feature of most tipping points: irreversibility. To read in full, subscribe to Unpacking Climate Risk here 👇 https://lnkd.in/eym-XH8b https://lnkd.in/ec7JG_ip #climaterisk #climatechange #tippingpoints #options

Andrew Paisley looks at four of the key reasons to consider the asset class in today’s uncertain climate. Read more here > https://ow.ly/VekQ50QeXW2 Capital at Risk. Professional Investors only

This is a great piece by the New York Times but it’s a very stark read. I immediately think of the major headline of the Stern review way back in 2006: taking action to mitigate climate change now would be far less costly than dealing with the impacts later - delaying action would result in significantly higher economic and social costs in the future. And here we are almost 20 years on… …as latest estimates suggest the damage by climate change is substantially higher than even the US government’s most up-to-date figure. This means GHG emissions over time will take a larger toll than regulators are accounting for. While some of this physical risk can be priced in - probably not all of it will or can. And as we improve our understanding of the links between weather events and economic impacts the damage estimates have only risen. So a dilemma for banks and asset managers…. short-term gain or climate benefit? Will lending become harder for at-risk businesses and places? Will insurance get more difficult to get and / or expensive and we see businesses self-insure more? And while banks and asset managers do need to play a key role they cannot surely be expected to substitute the lack of actions by policymakers… New research suggests the benefit is greater when decarbonisation occurs faster, because the risks of extreme damage mount as time goes on - but again a level playing field is needed…

Interesting article on Climate Risk in the financial system from the NY Times. Physical risk and carbon pricing are discussed in the article but to effectively manage investment risk its critical to quantify the financial impact of "integrated climate risk" (i.e. physical risk, transition risk and transition opportunity) at different time horizons. For example, under an accelerated transition to a low-carbon economy a companies financial exposure to transition risk is often significantly greater than the physical risk. However, transition risk is less well understood, analysed or discussed by the market. Vyzrd #climaterisk #sustainablefinance #sustainability #riskmanagement https://lnkd.in/ehQziWJM

Partner Insight: Climate transition - Avoid? Invest? Engage? In this article on the fixed income hub - The return of bonds, Aegon Asset Management's Jill Shaw and Rory Sandilands ask how can fixed income investors navigate the complexities of climate transition and whether bondholders can really make a difference to this real world issue? https://incm.pub/3Wk6RGX

A three pillar approach to climate investing. Can investors play a part in the battle against climate change while also seeking attractive financial returns? Hear more: https://ow.ly/WKUu50PYc0s Professional investors only. Capital at risk

So what explains this apparent disconnect? In some cases, it’s a classic prisoner’s dilemma: If firms collectively shift to cleaner energy, a cooler climate benefits everyone more in the future. But in the short term, each firm has an individual incentive to cash in on fossil fuels, making the transition much harder to achieve. Dilemma on Wall Street: Short-Term Gain or Climate Benefit? https://lnkd.in/e9REsZQf

It seems like the big players in finance are finally waking up to the reality of climate change 💡. But will they be able to accurately predict and prepare for its impact? Here's my prediction and commentary on the news: - This struggle to model the future impact of climate change is just the beginning of a major disruption in the financial industry. - The failure to accurately predict these environmental risks could lead to catastrophic consequences for both individual businesses and the broader economy. - While the efforts are commendable, it's clear that more needs to be done to address the uncertainties and risks associated with climate change. - The Federal Reserve, FHFA, large banks, and the GSEs must work together to develop innovative solutions and mitigate the threats posed by a changing climate. - Ultimately, ignoring or downplaying the impact of climate change is a risky bet that no one can afford to make in the long run. Let's hope that this wake-up call prompts decisive action and collaboration among key players in the financial sector 🌍.