Networks of financial rupture

Institutional investors, central banks, insurance companies and other financial actors are becoming increasingly aware of the risks entailed with fossil fuel investments, and the impacts climate change could have on their portfolios. However, the sector has yet to grasp the potentially very important financial risks created by secondary or indirect impacts of climate change. As previous studies have shown, climate change will not only lead to direct negative impacts, but could also through numerous pathways and feedbacks affect a number of ecosystems vital for human development. Such cascading climate shocks to ecosystems, and their implications on investments, are however very difficult to assess due to lack of data and models able to integrate financial, climatic and ecological parameters.

This proposed project intends to:

1. Develop a methodology to assess the connection between the financial sector, and secondary cascading effects created by climate and ecosystem changes associated with extractive sectors such as agriculture, forestry, and fisheries (WP1)
2. Map out these possible abrupt changes geographically, as a means to assess hidden financial risks (WP2)
3. Pilot early warning metrics of possible abrupt cascading climate-ecological changes of relevance for the financial sector (WP3)
4. Help operationalize these metrics for the financial sector (WP4)

The project is lead by Victor Galaz, deputy director of the Stockholm Resilience Centre, with the funding support from Formas.