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For the first time, the Bank of Canada ranks climate change as a key weak spot in the Canadian financial system and economy, as a growing number of governments start to warn of the risks to the planet and economy that global warming brings.
The Bank of Canada’s Financial System Review—2019, published on Thursday, lists six vulnerabilities in the Canadian financial system, and for the first time climate change made the list. According to the bank, the six top vulnerabilities are: high level of household indebtedness, imbalances in the housing market, cyber threats and financial interconnections, fragile corporate debt funding from certain markets, climate change, and rapid change in crypto-asset markets.
“Climate change continues to pose risks to both the economy and the financial system. These include physical risks from disruptive weather events and transition risks from adapting to a lower-carbon global economy,” the Bank of Canada said in its review, adding that it is undertaking a multi-year research plan to better assess the risks from climate change that are relevant to its mandate.
According to Canada’s central bank, “Limited understanding and mispricing of climate-related risks could potentially increase the costs of transitioning to a low-carbon economy.”
The bank noted that few firms disclose the financial impact of climate change on their assets and operations, and even these disclosures are not universal. In addition, mispriced assets due to lack of information on carbon exposure could later result in repricing of assets. However, “rapid repricing might cause fire sales and interact with other vulnerabilities—like excessive leverage—destabilizing the financial system,” the bank said.
Earlier this month, Ireland declared a climate emergency, with Climate Action Minister Richard Bruton calling climate change the greatest challenge mankind is facing.
The move, which followed cross-party support to amendments to a climate action report drafted by the parliament, made Ireland the second country in the world to declare a climate emergency after the UK. In the latter, the declaration followed crippling environmentalist protests in London that paralyzed parts of the city.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.