The planet has already been warmed by a degree Celsius above the normal preindustrial levels because of the deeds by humans, according to IPCC. Catastrophic floods, wildfires, storms, and droughts have been occurring on a regular basis, and an overwhelming scientific confirmation has already painted a devastating and clear picture of severe climate change.
The overall environmental, economic, and social impacts regarding climate change are expected to rise catastrophically high, under the latest projections. According to the latest estimation, if there is an increase of about 4 degrees Celsius in the upcoming future, there could be a $23 trillion global economic deprivation annually. It may result in permanent damage that could surpass the scale of the financial crisis occurred in 2007-2008. Carbon emissions must be limited and the magnitude and speed of actions taken will determine the degree of impact in the upcoming decades.
Acute climate change comes as an intrinsic risk for the overall financial sector warranting enhanced mitigation endeavors and heightened scrutiny of regulators. Systemic risks carry the potential to undermine the proper functioning of a system, which ultimately leads to significant negative outcomes in the economy.
Most importantly, exposure of financial institutions to transition and physical risks of acute climate change is not the only risk, but the fear is getting aggravated actively by providing considerable financing to the tasks intensifying climate change. Approximately $700 million is committed by Wall Street bank in the US towards the financing of fossil fuel from 2016-18. According to a survey conducted in 2018, about $528 billion have been invested in fossil fuel by the greatest insurers. The assets tied up with carbon industries have increased by almost 20 percent since the last half of the decade.
The severity and chances of undermining a crisis are limited to a great extent by financial regulatory protection by strengthening the flexibility of the financial system. For proper and safe handling of the US financial system decisive supervisory and regulative steps are essential to hold back the transition and physical risks imposed by acute climate change. Policymakers need to take the required transition steps in order to mitigate financial stability impact.
The NGFS or the Network for Greening the Financial System was established by 8 central banks in 2017. Financial regulators and an international group consisting of central banks are working to integrate the threats regarding climate change.