Why stress tests are now being applied to climate change

Leading economist Gita Gopinath, a Harvard professor, told a briefing at the World Economic Forum in Davos that many banks are adding the chance of hell and high water to their stress tests.

“The stress tests used to be merely about earnings and outlook, now banks are adding natural disasters,” Gopinath

This is one of the greatest long-term threats to the world in 2019, according to the World Economic Forum’s Global Risks Report that paints a bleak picture of the year ahead full of trade wars, cyber-attacks and unemployment.

Four of the five top risks by impact are posed by the elements: failure to mitigate the effects of climate change; floods and storms; water crisis, plus earthquakes, tsunamis, volcanos and electric storms.

Economists Gopinath and Laurence Boone, a PHD from London Business School, painted a gloomy picture of globalisation. They identified trade tensions, Brexit, worsening financial conditions and the slowdown of China, plus the wiping out of jobs through increased competition as major downsides.

The economists recommended more training to overcome the job losses; the downside to this? More taxes to pay for it, they said. A recommendation unlikely to give much cheer to the world’s hard pressed companies.   



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