Open questions | Climate, demographics and geoeconomic cracks top challenges: EU economist Rolf Strauch
- European economist Rolf Strauch touches on climate change, demographic, geoeconomic fragmentation and financial challenges for the global economy
Mr Strauch, you have mentioned that climate change is the next big financial threat. Why do you think this is significant to the financial sector and are global institutions adjusting enough to meet this new threat by referencing the European situation and its climate target?
Climate change is indeed one of the three major mega trends affecting the global economy. The other ones are demographics and geoeconomic fragmentation. We need to recognise that the financial sector is a connecting sector within economies because it can be either an absorber and a mitigant, or it can be an amplifier of what happens to the economy through climate change.
That depends very much on whether financial flows will help smoothen out the impact of climate change, or if they will be more disruptive.
I generally distinguish between transition risks and physical risks emerging from climate change.
Transition risks are related to a more sustainable and carbon neutral economy. That requires a lot of changes in policies. And these changes bring about reputational risks, operational risks, legal risks. Assets may get stranded. They may lose their value in that context.
Then, there are physical risks. Obviously, physical destruction may be hugely disruptive. The damage and the value destruction that may happen in the advanced economies may be bigger.
