Climate change poses a systemic threat to the global economy, as highlighted by the G20’s work through the Task Force for Climate-related Financial Disclosures (TCFD). These risks include physical impacts such as droughts and sea-level rise, transition risks as the economy moves towards low-carbon solutions and technologies, and litigation risks as society seeks redress for damage caused to the environment and economy. The risks are likely to affect all financial institutions and, in many cases, are already impacting returns.
Climate change also presents opportunities for the finance sector, as private sector capital will be needed for mitigation, such as renewable energy and clean transport, and for adaptation, such as smart agriculture and climate-resilient infrastructure. Climate finance targets in the Sustainable Development Goals (SDG 13) call for a major shift in investment patterns towards low-carbon, climate-resilient development.
To achieve global targets set by the Paris Climate Agreement, significant changes will be required to the allocation of capital across the economy. Mechanisms that price carbon emissions, such as carbon trading and climate credit schemes, can raise significant funds for developing countries to invest in projects to address climate change. According to the World Bank, around $US 700 billion of low-carbon investments per year will be required by 2030 from public and private sources.