Module 3: Systemic Risks

Module Overview

Module 3 explores systemic risks—risks that impact entire economies. Besides the scope of the potential impacts, one of the characteristics of systemic risk is that it is difficult—if not impossible—to diversify against the risk. So, even organizations that otherwise have relatively low exposure to physical and transition climate risks are likely to be impacted, should the systemic risks materialize.

In this module, we’ll examine three inter-related systemic risks: financial stability; macro-economic stability (e.g., GDP, price levels, unemployment, interest rates); and, public budgetary failure. We’ll explore how these three system-level risks interact with each other, and with the physical and transition risks identified in Modules 1 – 2.

Module Objectives

By the end of this module, you will:

  1. Understand the systemic economic risks posed by climate change to fiscal sustainability (public budgets), GDP, and financial system stability;
  2. Consider the importance of collective action in light of non-diversifiable risks
  3. Identify the influence exerted by socio-political responses to climate change on the magnitude and timing of systemic impacts;
  4. Use Shared Socioeconomic Pathways (SSPs) and Representative Concentration Pathways (RCPs) to develop scenarios with which to assess exposures to systemic risks over time.


Readings & Resources

Kompas, T., Pham, V.H., Che, T.N. (2018). The effects of climate change on GDP by country and the global economic gains from complying with the Paris Climate AccordEarth’s Future, 6(8).

Prudential Regulation Authority. (2015). The impact of climate change on the UK insurance sectorBank of England. [Excerpts only]

Prudential Regulation Authority. (2018). Transition in thinking: The impact of climate change on the UK banking sector. Bank of England. [Excerpts only]

Schuler, P., Oliveira, L.E., Mele, G., & Antonio, M. (2019). Managing the fiscal risk associated with natural disasters. In Pigato, M.A., (Ed). Fiscal Policies for Development and Climate Action. World Bank Institute. [Excerpts only].

Data sources

International Institute for Applied Systems Analysis. (2018). SSP Public Database (v. 2.0) [Database].




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Financial Impact of Climate Change by Todd Thexton is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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