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What trillion dollar threat could trigger the next financial collapse?

by ace
What trillion dollar threat could trigger the next financial collapse?

Recent reports suggest that trillions of dollars of market value could turn into smoke due to climate change and that entire asset classes could be undermined as "temperature warms up".

According to the company risk and reinsurance Aon, 2017 and 2018 were the most expensive in economic losses related to physical damage caused by increasingly frequent natural disasters.

The danger gets worse when such physical damage begins to revalue portions of entire classes of assets. A striking example is the coastal real estate market, which will change dramatically as the threat grows larger.

This happens through a variety of mechanisms: people move away, zoning requests restrict construction, insurance companies withdraw support, investors remove capital, and so on.

According to one report from the Center for American Progress (CAP), if sea levels rise by 2 meters by 2100, an estimated $ 900 billion worth of US homes would "literally" stay – and in turn financially. – under water".

The bottom line is that the sector is now worth a fraction of what it once was – this is just one aspect of climate change that affects only one particular sector.

Impacts of climate change

Closer climate policies will eliminate $ 2.3 trillion in value from a number of fossil fuel companies, suggests a recent report from the international investor group Principles for Responsible Investment (PRI).

As the impacts of climate change worsen, the likelihood of a reaction to this policy grows accordingly. The world could heat up almost 3 degrees Celsius by the end of the century, twice the rate scientists and governments are seeking.

"It is highly unlikely that governments will be allowed to let the world slip down to 2.7 degrees Celsius without being forced to act faster," wrote Fiona Reynolds, CEO of PRI.

The fossil fuel sector could lose a third of its current value as high-cost coal, oil and gas reserves would become sunk assets, according to PRI. According to historian Adam Tooze, there are between $ 1 and 4 trillion ($ 4 and 16 trillion) in energy assets that could be held back, and $ 20 trillion ($ 81 trillion) in the broader industrial sector.

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                    Sputnik / Natalia Seliverstova

US dollar bills

According to speculation, the combined effect of massive asset revaluation and increasing physical damage from climate change could trigger a financial crisis. Banks, insurance companies and other financial intermediaries are entangled in the oil and gas complex.

Because these assets are noted in value, the financial cost could multiply and trillions of dollars in value could be erased.

(tagsToTranslate) Trillions of dollars of market value could turn into smoke (t) Whole asset classes could be undermined by climate change (t) Sector now worth a fraction of what it once did

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