Absent a crisis, how do you prove the (in)effectiveness of climate regulation?

Right from the start of our climate risk journey, banking regulators have been telling us we face a radically uncertain future.  That history is no guide to the likely future we will face and that, as a result, conjectural narrative-based methods are required to understand the threat global warming creates for banks.

I’ve always been very critical of this conception of the regulators’ dilemma.  It veers sharply away from the standard data-driven approach to policy that is normally required of every other government action.  Not only this, it denies centuries of tradition based on empirical reasoning and science.  While action to address the long-term threat to humanity posed by climate change may be justified by the precautionary principle, this does not apply to questions of bank safety.  It’s critical that we draw a sharp distinction between these aims.  Thinking that safe banks will ensure success in our fight to stabilize the planet is completely backward.

If regulators accept the premise of their own statements – that history is not relevant and that climate outcomes are radically uncertain – their only logical conclusion should be that conducting detailed stress tests of the impact of climate change on bank financial outcomes is a colossal waste of time.  Under such circumstances, it is inconceivable that we could devise plans now that will be in any way relevant when such a future becomes the present.  

If something cannot be understood, it is madness to pretend that we understand it.