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Climate Crisis Could Drive $20 Trillion in Losses, Trigger Global Financial Meltdown

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Climate change is the next economic threat that could trigger a global financial meltdown by destroying up to US$20 trillion in market value, independent journalist Nick Cunningham writes for Oilprice.com.

And in contrast to analysis focused specifically on fossil fuels, Cunningham is mostly talking about investments in other sectors of the economy.

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“The damage hits the global economy in multiple ways,” he writes [2]. “The first is the most obvious. Physical damage from more powerful natural disasters is on the rise. 2017 and 2018 were the costliest back-to-back years for economic losses related to natural disasters, according to risk and reinsurance firm Aon.”

But that’s just the start. “The danger grows worse when the physical damage starts to reprice portions of entire asset classes,” Cunningham warns. “One glaring example is the real estate market along coastlines, which will see both physical damage and a dramatic repricing as the threat becomes increasingly clear.” He cites a recent estimate by the Center for American Progress that six feet (1.82 metres) of sea level rise by 2100 would put U.S. homes worth $900 billion “literally—and in turn financially—underwater”.

And “this is just one aspect of climate change affecting just one particular sector”.

That’s the looming reality that Cunningham sees motivating governments to “transform what is and isn’t valuable” by taking action to address the climate crisis. He says Principles for Responsible Investment, a group representing investors with $86 trillion under management, foresees that action wiping out $2.3 trillion in value from various fossil companies. 

“It’s highly improbable that governments will be allowed to let the world glide to 2.7°C without being compelled into forceful action sooner,” wrote PRI CEO Fiona Reynolds last month. The organization added that the “inevitable policy response” will likely be “forceful, abrupt and disorderly” because of industry foot-dragging and delayed action by governments. [Cunningham might have added: because of fossil influence at annual United Nations climate negotiations and the actions of climate criminals [3] like the United States.—Ed.]

“Industry groups always point out that as long as there is demand, they will continue to meet that demand,” Cunningham writes. “However, as the impacts of climate change grow worse, the likelihood of a policy backlash grows in corresponding fashion.” PRI sees the fossil sector losing one-third of its current value, while historian Adam Tooze anticipates $1 to $4 trillion in stranded fossil assets, and $20 trillion in the broader industrial sector.