Why confusing financial risk and climate impact is a bad idea

A couple of weeks back, Professor Robert Eccles, a long time commentator on sustainable business, published an interesting take-down of regulatory approaches to climate risk that mirrors many of my own views.  Both of us rail against the conflation of climate impact and financial risk, though we do so in slightly different ways and come to slightly different conclusions.

As Eccles observes:

“While climate risk certainly can pose financial risk, climate risk is not always financial risk, and managing the financial risk from climate change is not the same thing as managing climate impact. Impact can be high even when financial risk is low.”

This passage is certainly consistent with a core theme of my writing.  For example, in a LinkedIn post I wrote last summer, I proposed the following Faustian bargain:

“Can you imagine a scenario in which we successfully stabilize the climate over the next twenty years, but experience several severe financial crises along the journey? I can.

Alternatively, can you imagine a scenario in which we successfully shore up bank safety over the next two decades but global temperatures continue to climb unabated?  I can imagine that scenario as well. 

Now suppose you were offered these imperfect outcomes as a Faustian bargain. Which would you pick?”