COMPLACENT MARKET

The 2008 financial crisis shocked the world and demonstrated that nothing can be taken for granted. The stakes now are far higher, and there can be no bailouts

- Fiona Watson

As business, government, and nonprofit leaders debate the future of climate action ahead ofthe United Nations Climate Change Conference(COP30)in Brazil, the global economy remains vulnerable to acute and chronic climate-driven shocks whose impactcould be more severe than that of the 2008 global financial crisis.

At a time when many governments and businesses continue to underestimate and under-price physical climate risk, we must remember that neither financial markets nor regulators are always right.

What if their current complacency about climate risks is catastrophically wrong?

The 2008 financial crisis and its aftermath showed how fast our expectations can be shattered. In the mid-2000s, deregulation and simplification were the norm: balance sheets were run thin, and profits and losses ran high. Financial engineering boomed as risks were packaged, diluted, and obfuscated, and as credit was given where it hadn’t been earned.

In the face of all this, expressions of concern were drowned out by the din of transactions. But the signs were there. The fundamentals were not right.

By late 2008, the global economy was teetering on the brink of collapse. In the space of days, longstanding banking giants were swept away. Only government bailouts prevented the entire financial system from melting down.