Climate Risks, Economics and Finance: Insights from Complex Systems

Abstract

Climate change is posing daunting challenges to our societies. Such challenges are increasingly recognized by policymakers, practitioners and academics. Indeed, to limit the negative impact of human activities on the climate, 193 governments signed, in December 2015, the “Paris Agreement” aimed at stabilizing global temperature on 2 °C above pre-industrial levels. Meeting this goal requires massive private and public investments in low-carbon technological development, thus requiring a new role for the financial system and policymakers in the climate-finance nexus. Indeed, the financial system is expected to play a major role in shaping the speed, timing and pace of a sustainable transition by mobilizing capital. At the same time, policymakers ought to implement effective measures to foster new technologies and investments necessary to achieve a sustainable growth path. In addition, policymakers face the challenge to tackle the potential economic and financial risks associated to an uncoordinated low-carbon transition. In this chapter, we will employ a complexity perspective to study the risks, challenges and opportunities involved in the green transition, taking also into consideration the possible non-linearities, tipping points and path-dependency that characterize the co-evolution of climate, financial markets and economic dynamics.