A financial crisis is looming. For a planet whose growth has for years been driven by fossil fuel companies, there is a growing feeling that attempts to keep the planet habitable might just tilt the scales and cause the next financial crisis. Many now believe that companies in the fossil fuel business will have no use for some of the assets they have maintained and track, which have in-turn made them billions of dollars. With no more need to do asset tracking for their stranded assets, it will become clear that Climate Change may just be the root of the financial crisis that will hit the world next. When this finally happens, it is not only asset tracking business will be affected, the global financial market as a whole will feel the impact.
Gas, coal and oil companies have already set aside trillions of dollars to develop new fields and discover new deposits. With a continuing global push to reduce emissions and keeping the global warming average at 2 degrees Celsius, a choice will have to be made. We either continue advancing the fossil fuel companies laid-out plans or take climate change seriously enough to stop unfettered production of gas, oil and coal. According to Climate Change scientists, of all the known gas, oil and coal reserves around the globe, the planet can only afford to burn a third of it. Burn more than this and the planet is in an unchartered territory and Climate Change will surely take a toll.
The whole scenario makes for the perfect mismatch between official policy for governments around the world and investments by their fossil fuel companies. The stranded assets that Climate Change initiatives might create are likely to become a problem for the companies as well as the world markets. Market watchers believe that an unexpected reprising of these assets has the potential of creating systemic risks and may the trigger of the financial crisis that is expected to hit the financial world next.
The market watchers say that they see noteworthy parallels between the mispricing of housing market risks that happened before the financial crisis of 2007/2008 and mispricing of the climate risks in today’s financial markets. In 2007/2008, many people did not want to accept that if paying the mortgages was an impossible task for most people, then the houses must have been less valuable. As a result, a bubble formed, only to later burst unexpectedly and violently.
Just like we are seeing the pound plummeting in reaction to the news of Britain’s decision to leave the European Union, experts in global financial markets predict that Climate Change will have a similar effect, and if left unchecked the ultimate result will be a devastating financial crisis that will be felt everywhere around the world.