Climate change risks can potentially impact financial stability January 2017

by Viola Lutz

Transitional and physical risks related to climate change have the potential to impact financial markets, reveals a study commissioned by the German Finance Ministry and written by South Pole Group jointly with partners.  While physical risks related to climate change have, up to the year 2030, a very small risk of impacting financial market stability in Germany, transitional risks pose a much higher threat: a sudden pricing of the economic costs of climate change into financial markets, such as an abrupt and considerable adjustment of carbon prices, for example, could lead to significant losses.  If such an event were combined with other financial market risks, this could pose a threat to overall market stability. On the other hand, an orderly transition to a financial market that is in line with international climate goals would in turn support financial market stability. Download the full report in German or in English.