Finance & Development, December 2019: The Economics of Climate

This issue of Finance & Development looks at the economic and financial impact of climate policy choices. It points to concrete solutions that offer growth opportunities, driven by technological innovation, sustainable investment, and a dynamic private sector. The private sector can stop supporting or subsidizing industries and activities that damage the planet and instead invest in sustainable development. Governments can roll out policies to fight climate change and the destruction of nature. The paper highlights that technological change and innovations are central to longer-term efforts to mitigate climate change by developing alternatives to fossil fuels. A new, sustainable financial system is under construction. It is funding the initiatives and innovations of the private sector and amplifying the effectiveness of governments’ climate policies—it could even accelerate the transition to a low-carbon economy. The Bank of England’s latest survey finds that almost three-quarters of banks are starting to treat the risks from climate change like other financial risks—rather than viewing them simply as a corporate social responsibility. Banks have begun to consider the most immediate physical risks to their business models—from the exposure of mortgage books to flood risk to the impact of extreme weather events on sovereign risk.