Banking and insurance, and climate changes
Climate change is a challenge affecting all aspects of life: meteorological phenomena, Earth's biodiversity, access to water and land resources, air, water and soil pollution, industrial and agricultural production, distribution and consumption of goods and services, employment, migration patterns.
In this regard, modern policies to tackle the effects of climate change need to do more than take measures to reduce carbon emissions. They should encourage all state institutions, communities, businesses and individuals to participate in national and international efforts to address the challenges of climate change.
Banks are important financial institutions that should play a significant role in these efforts. For example, the setting of interest rates affects the prices of goods and services. This in turn determines consumption patterns, influencing environmental change and the resulting climate change. In addition, interest rates affect the amount of money a country and its financial institutions can devote to tackling climate change and under what conditions.
The power of banks, however, is not unlimited. They are guided by their own rules, as well as by qualified but unelected technocrats with incomplete public accountability.
Despite their inherent conservatism, banks are becoming increasingly aware of the need for growing commitment to the efforts of human civilization to tackle climate change. Several examples illustrate their vulnerability, as well as their role in this fight:
- Significantly increased numbers of severe droughts and floods, as well as other extreme weather events, are affecting food prices and hence inflation. These events can lead to damage to fertile lands, production facilities and buildings, and sometimes they become unusable. This can affect employment and the ability of debtors to meet their financial obligations to banks.
- Reducing carbon emissions is a process that can be influenced by banks by lending to one or another economic activity. Too often, banks tend to prefer lending to more carbon-intensive companies and activities such as coal, oil and gas, or cement and steel production, rather than renewable energy development and commissioning initiatives. Such a policy of a bank means that it does not actively stimulate investment in green industries and in practice helps to deepen climate change issues.
The insurance industry is also highly vulnerable to climate change. The frequency and intensity of most types of extreme events is expected to increase significantly, and with them insurance premiums. The negative economic consequences can be reflected in costly disaster relief operations, as well as the need to pay billions of euros to cover material damage resulting from rising sea levels. In the long run, climate change may indirectly increase social inequalities in societies, as insurance premiums become unaffordable for part of the population.
Related profession
