RBA told to ‘mobilise all forces’ to save the economy from climate change

RBA told to 'mobilise all forces' to save the economy from climate change

The global financial crisis was described by some experts as a “black swan” – an economic event that is extremely unexpected with wide-ranging effects. The BIS said central banks would now have to start thinking about “green swan” events, which would force them into saving the global financial system from the impact of climate change.

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During the global financial crisis some central banks directly intervened to save private banks and insurance firms as part of a program to protect the economy. The BIS said this could be a template in the case of climate change with central banks buying up distressed assets.

“In the worst case scenario, central banks may have to confront a situation where they are called upon by their local constituencies to intervene as climate rescuers of last resort,” it said.

The BIS said climate change events that severely affected the financial health of the banking and insurance sectors could force central banks to intervene and “buy a large set of carbon-intensive assets”.

Many central banks including the RBA have raised concerns about the impact of climate change on the local economy, but the BIS said they will have to be more forceful.

It said “catastrophic and irreversible” impacts from climate change may make it impossible to determine the full extent of the damage caused to the global economy. Banks could not take a “wait and see” approach.

“If central banks are to preserve financial and price stability in the age of climate change, it is in their interest to help mobilise all the forces needed to win this battle,” the bank said.

The report was released as the International Monetary Fund downgraded its forecasts for the global economy through this year and into 2021.

The fund expects the economy to grow by 2.9 per cent in 2020, a 0.1 percentage point downgrade from its October forecast.

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It noted that risks to the outlook had improved over recent months, in part due to the United States and China agreeing on a new trade deal, but warned climate change was a growing economic problem.

“Weather-related disasters such as tropical storms, floods, heatwaves, droughts and wildfires have imposed severe humanitarian costs and livelihood loss across multiple regions in recent years,” it said.

The warning from global authorities comes as Australian business leaders become increasingly anxious about the threat of climate change.

New research shows nearly twice as many local executives view climate change as society’s biggest issue compared to their international peers.

The Deloitte survey of more than 2000 global executives found pressure from external stakeholders and employees has led to leaders shifting their views on the risks of climate change.

“They’re starting to understand that a new form of capitalism is emerging, one that considers a broader group of stakeholders and measures societal impact alongside financial performance,” the report found.

Up to 89 per cent of the 150 Australian executives surveyed viewed climate change and environmental sustainability as the “societal issue of greatest focus,” compared to 54 per cent world-wide.

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More than 80 per cent, half of whom were aged between 45 and 54, viewed it as their generation’s responsibility to solve. The same amount believed it would have a “negative impact on business operations”.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra

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