Exploring Climate-Related Financial Risks: Insights from the Federal Reserve’s Pilot CSA Exercise

This article provides an overview of the Federal Reserve’s 2024 pilot Climate Scenario Analysis (CSA) exercise, involving major U.S. banks such as Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. It discusses the key insights from the exercise, the explored risk modules, and the importance of a healthy financial system in addressing climate concerns.

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Cumulative Exposure to Climate Change for RCP 2.6 (Strong Mitigation)

On going greenhouse gas emissions are simultaneously shifting many elements of Earth’s climate beyond thresholds that can impact humanity. By affecting the balance between incoming solar radiation and outgoing infrared radiation, man-made greenhouse gases are increasing the Earth’s energy budget ultimately leading to warming . Given interconnected physics, warming can affect other aspects of the Earth’s climate system. For instance, by enhancing water evaporation and increasing the air’s capacity to hold moisture, warming can lead to i) extreme precipitation, also increasing risk of floods, in commonly wet places or ii) drought in commonly dry places, also increasing risk of wildfires, and heatwaves when heat transfer from water evaporation ceases. In the oceans, CO2 interacts with water to produce carbonic acid leading to ocean acidification whereas warming of water molecules increases the volume they occupy adding to the sea-level rise from melting land ice. Ocean warming can also supply moisture increasing the strength of storms. In an extensive literature review, we found traceable evidence for 467 pathways in which human health, water, food, economy, infrastructure and security have been recently impacted by climate hazards such as warming, heatwaves, precipitation, drought, floods, fires, storms, sea level rise, and changes in natural land cover and ocean chemistry. By 2100, on average, the world’s population will be exposed concurrently to the equivalent of the largest magnitude in one of these hazards if greenhouse gasses are aggressively reduced or three if they are not; some tropical coastal areas will be exposed to the largest changes in up to six hazards concurrently. These findings highlight that greenhouse gas emissions pose a broad threat to humanity by simultaneously intensifying many hazards, which humanity is vulnerable to.

Map description: This web app shows the cumulative index of 11 climate hazards: warming, drought, heatwaves, fires, precipitation, floods, storms, water scarcity, sea level rise, and changes in natural land cover and ocean chemistry. All climate hazards were scaled between zero and the 95th percentile change projected in the given hazard globally by 2095 under RCP 8.5 (worst case scenario); In other words, a pixel with a value of zero in a given hazards suggests that that hazard will not change in that pixel. In turn, a pixel with a value of 1 suggests that the most extreme increase of that hazard anywhere in the world will occur in that pixel. This standardization allowed for the summation of changes in all hazards at a given pixel to generate a cumulative index of climate change shown in this web app globally under three alternative scenarios.

Journal: Nature Climate Change
Authors: Camilo Mora, Daniele Spirandelli , Erik Franklin , Michael Kantar, John Lynham , Wendy Miles , Charlotte Smith , Kelle Freel , Jade Moy , Leo Louis , Evan Barba , Keith Bettinger , Abby Frazier , John Colburn IX , Naota Hanasaki , Ed Hawkins , Yukiko Hirabayashi , Wolfgang Knorr , Christopher Little , Kerry Emanuel , Justin Sheffield , Jonathan Patz , Cynthia Hunter.

Climate Litigation: A Growing Force in the Fight Against Climate Change

As the world faces increasingly severe climate impacts, governments and corporations are being held accountable through a surge of climate-related lawsuits. A recent study, Research Areas for Climate Litigation, conducted by the Union of Concerned Scientists (UCS) in September 2024, highlights the critical role of climate litigation in driving action where traditional policy-making has often…

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