Climate Change as Systemic Risk

Hindsight tells us that COVID-19, thought by former President Trump and others to have come out of nowhere, is more aptly labelled a “gray rhino” event, one that was highly probable and preventable. Indeed, despite considerable evidence of the impending threats of pandemics, for the most part, governments failed to prepare for the pandemic, resulting in wide-scale social and economic losses. The lessons from COVID-19, however, should remind us of the perils of ignoring gray rhino risks. Nowhere is this more apparent than with climate change, a highly probable, high impact threat that has largely been ignored to date. Despite those who deny climate change, there remains ample evidence of the increasing temperature of the earth. Moreover, like COVID-19, climate change has the potential not only to create public health emergencies, but also to create wide-scale, enormous adverse impacts on the economy. Indeed, the risks posed by climate change to the economy have the potential to be so far-reaching that climate change should–as this article argues–be termed a systemic risk. As such, the economic implications of climate change need to be mitigated in order to preserve economic stability. This is not only necessary for prudential and economic reasons, but also to protect citizens’ health and safety, and to ensure that business does not exceed the limits of the planet. While there has been some attention to addressing the economic implications of climate change at the global level, progress in the U.S. has been minimal. This is surprising for two reasons. First, because climate change has already caused unprecedented damage in certain parts of the country. Second, because to some extent, existing legislation and models may offer the tools to address the systemic risks of climate change. Drawing inspiration from the Dodd-Frank Act, SEC rules, and the FDIC model, among others, this article proposes regulatory approaches for mitigating the systemic risks of climate change in hopes that COVID-19 does not foreshadow our fate for climate change