The Bank of Canada said that climate change is a key threat to our country’s financial system and the global economy in a landmark report released yesterday.
It's the first time ever the BoC has cited climate change among the top vulnerabilities to the economy in its Financial System Review. The inclusion was likely welcome news for critics who, according to CBC News, have been pushing the BoC for years to examine the impact global warming will have on our financial stability.
We've known for some time the impact climate change will have on our weather patterns, our oceans and forests, our health, and our food supply, but the BoC’s report outlines what effect our warming planet will have on our finances.
“Climate change continues to pose risks to both the economy and the financial system,” the report says. “These include physical risks from disruptive weather events and transition risks from adapting to a lower-carbon global economy. Economic activity and the environment are intertwined.”
Among the risks the BoC cites are “an increase in extreme weather events such as flooding, hurricanes and severe droughts,” which are already crippling the insurance industry. But the bank also highlights that if/as we shift toward a low-carbon economy, we could face “transition risk.”
“Transition costs will be felt most in carbon-intensive sectors, such as the oil and gas sector,” the report says. “If some fossil fuel reserves remain unexploited, assets in this sector may become stranded, losing much of their value. At the same time, other sectors such as green technology and alternative energy will likely benefit.”
CBC News reported that the BoC joined the Network for Greening the Financial System back in March, which marked its public commitment to working climate-related risks into its review of the country’s financial system. But while the BoC has, in a sense, just joined the charge, climate change has been grabbing the attention of the home insurance industry for some time now. The Intact Centre on Climate Adaptation, for instance, is spearheading mitigation plans to reduce the negative effects of flooding, which remains Canada’s largest climate change-related threat.
Still, with the BoC now sounding the alarm on the threat climate change poses to our economic stability, some experts expect a renewed sense of urgency to follow.
“We're still at the very beginnings of modelling the impact of climate change on the economy ... the Bank should obviously have a leading role in that,” Céline Bak, president of Analytica Advisors and a senior associate with the International Institute for Sustainable Development, told CBC News.
“When the Bank of Canada speaks, people listen.”