Investors Are Underestimating the Risks of Climate Change – UNDESA

The climate crisis is posing a serious and growing threat to short- and long-term economic prospects, and investors and financial markets are underestimating the risks of climate change.

This is one key conclusion of the report “World Economic Situation and Prospects 2020,” published by the Department of Economic and Social Affairs.

The report identifies the energy sector – currently responsible for approximately 75% of global greenhouse gas emissions – as key to tackling the climate emergency.

The report’s authors say that investors are still making short-sighted decisions to expand investment in carbon-intensive assets such as oil and gas exploration and coal-fired power generation, which threaten to derail environmental targets.

If per capita emissions in developing countries were to rise towards those in developed economies global carbon emissions would increase by more than 250%, compared to the global goal of reaching net zero emissions by 2050.

Therefore, the only way to sustainably meet the world’s growing energy needs is through a global shift to renewable or low-carbon energy sources.

Meanwhile, financial markets are also underestimating climate risks, including the potential damage of weather-related shocks and the costs of adaptation and mitigation efforts. This leaves economies exposed to climate-related shocks with the potential to destabilize financial markets.

Policies are Required to Transition to Clean Energy

The necessary transition to a cleaner energy mix will require policies that steer nations towards carbon neutrality by 2050, including setting a meaningful price on carbon pollution, abandoning perverse fossil fuel subsidies and ending investment in and construction of coal-fired power plants by 2020.

While an increasing number of private initiatives and citizen-led movements are taking place, ambitious government policy, including at the multilateral level, remains the most significant lever to trigger wide-reaching change.

National policies need to be complemented by more effective international cooperation and a strong global commitment to the effective implementation of the 2015 Paris Climate Change Agreement Rulebook.

Well-balanced policy strategies can maintain economic stability while broadening access to clean, affordable and reliable energy, the report’s authors write.

This transition has the potential to bring not only environmental benefits, but also economic benefits for many countries.

For example, heavy importers of fossil fuels stand to benefit from the development of local renewable energy sources, leading to improvements in energy supply security and external balances.

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