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What Financial Risk Management Has To Do With Climate Change – And The Price Of Inaction (Forbes)

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FORBES | When we talk about the long-term risks of climate change, it’s hard for the American public, for company executives, and for lawmakers alike to accurately picture what the implications of climate inaction will mean ten, twenty, or fifty years from now. We hear stories of worst-case scenarios, but sometimes it sounds more like science-fiction than reality.

To better understand this issue, I turned to my friend Bob Litterman, a financial risk expert who managed risk for Goldman Sachs for two and a half decades. He explained that, “Financial risk management has several simple principles that apply to managing climate risk.” First, it involves identifying the “worst case” scenarios. Second, the objective of financial risk management isn’t to minimize risk, but rather to price and allocate risk appropriately. Third, is recognizing the value of time – it’s a scarce resource. Let’s examine these three principles more closely in relation to climate change.

Imagining “Worst Case” Scenarios

We know climate risks are large, but just how large is hard to anticipate. Traditional risk-modeling techniques rely on historical data to make future projections – but we are in uncharted territory. Human-caused climate change has a short history, surging in the mid-20th century through present day, and its impact is cumulative, building year to year. According to NASA atmospheric scientist David Crisp, “Half of the increase in atmospheric carbon dioxide concentrations in the last 300 years has occurred since 1980, and one quarter of it since 2000.” And unlike some other gases, carbon dioxide stays in the atmosphere for centuries, between 300 to 1,000 years. Regulators and financial market participants are handicapped in their ability to make informed decisions, as forward-looking analysis methodologies are still being developed.

Read more at Forbes: https://www.forbes.com/sites/billfrist/2023/07/10/what-financial-risk-management-has-to-do-with-climate-change–and-the-price-of-inaction/?sh=2670b7a33304

How A Changing Climate Is A Threat To The Stability Of Our Federal Budget (Forbes)

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FORBES | According to recent data from the National Oceanic and Atmospheric Administration (NOAA) and NASA, 2022 tied as the fifth warmest year on record. Why does this matter? Well, a warming climate directly affects the health of you as an individual – and your family, communities, businesses, and our overall economy. We are seeing these effects now and scientists anticipate that they will grow.

Yes, climate change and changing weather patterns create an environmental crisis, but increasingly we are realizing they create a health crisis, and a food crisis, and ultimately a threat to our economic security and to the stability of our federal budget.

The budgeting agencies of both the White House (Office of Management and Budget) and the United States Congress (the nonpartisan Congressional Budget Office or CBO), have both projected sizable budgetary impacts from climate change. The CBO states it succinctly: “Climate change increases federal budget deficits, on net.” A reduction in economic output related to lower worker productivity and damage to physical capital and the corresponding drop in income and payroll taxes will create a drag on federal revenues, while mandatory and discretionary spending demands will increase.  

Indeed, climate change touches nearly all aspects of what in the aggregate comprises our national economy. And it is through this policy lens of the federal budget (The author served on the Budget Committee of the U.S. Senate from 1995 until 2002 and testified before that committee on May 10, 2023) that our elected public officials are called upon to look to the future, assess, and react to public risk. While Congress is notorious for delaying action until absolutely necessary — as we saw with the recent debt limit debate — I hope our elected officials will begin in earnest to address climate change and its impact, as we are in uncharted territory and there will come an unpredictable time in the future when failure to act will balloon budget costs exponentially.

Read more at Forbes: https://www.forbes.com/sites/billfrist/2023/06/14/how-a-changing-climate-is-a-threat-to-the-stability-of-our-federal-budget/?sh=3d750c565650

In a Divided Congress, Four Opportunities for Cooperation on Nature (Nature.org)

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NATURE.ORG | December closed one of the most productive U.S. federal legislative sessions for nature ever. By the time the 117th U.S. Congress gaveled out, it had advanced the country’s largest investment in climate action; a massive bipartisan infrastructure package that heavily invests in nature, clean energy, and climate resilience; and a host of bills related to water infrastructure, natural climate solutions, coastal and ocean resilience.

Any one of these advances would have been impressive in itself, but to do them all in just two years shows how far we’ve come in making conservation and climate action central and urgent policy issues in the United States. Some of these victories passed on party-line votes, but the vast majority of measures passed last Congress had strong bipartisan support. 

For The Nature Conservancy (TNC), it has never been about who controls Congress or the White House that defines our policy objectives, but where the science tells us we must act. As the 118th Congress settles in, there are several opportunities to build on the progress of the last Congress and continue bipartisan support for nature.

Read more at nature.org: https://www.nature.org/en-us/about-us/who-we-are/how-we-work/policy/frist-vetter-opportunities-congress-nature/