Financial actors and climate stability

December 2018: A recent study identifies a small set of financial actors that have an extended ability to influence climate stability. It points towards an explicit link between stock ownership, global institutional investors and so-called tipping elements in the Earth’s system such as the Amazon or boreal forests.

Information

A recent study identifies a small set of financial actors that have an extended ability to influence climate stability. Their stock ownership in sectors that modify critical biomes such as the Amazon rainforest or boreal forests in Russia defines the planet’s climate stability or instability. They are linked to economic activities such as share ownership of companies’ that produce soy, beef, or timber that modify large ecosystems. If their activities support climate instability, it will cause a trickle-down effect and lead to financial instability of the same financial actors.

Implications and opportunities

Due to the direct link between climate risk and systemic financial risks, investors should re-direct investments into supporting the critical biomes. This would bolster the resilience and stability of the Amazon or boreal forests and lead to decreased systemic risk for financial actors. It points towards an explicit link between stock ownership, global institutional investors and so-called tipping elements in the Earth’s system. Investors could require explicit targets that relate to reforestation and rehabilitation measures that improve biodiversity, curb reputational damage, and prevent higher equity costs for divested companies.

Sources

Financial Times. (2018). Sustainable Finance: Central Banks Test Waters on Climate Risk. Retrieved from https://www.ft.com/content/6af35cee-d3a7-11e8-9a3c-5d5eac8f1ab4

Galaz, V., Crona, B., Dauriach, A., Scholtens, B., & Steffen, W. (2018). Finance and the Earth system – Exploring the links between financial actors and non-linear changes in the climate system. Global Environmental Change, 53, 296–302. doi:10.1016/j.gloenvcha.2018.09.008