The research, published in Nature Energy, notes that financial markets are not taking into account the risks that catastrophic events such as floods, droughts and other extreme weather events will have on the economy.
“If the market doesn’t do a better job of accounting for climate, we could have a recession—the likes of which we’ve never seen before,” said the study’s author, University of California, Davis accounting professor Paul Griffin, in a statement.
File photo: Visitors look out onto free-floating ice jammed into the Ilulissat Icefjord during unseasonably warm weather on July 30, 2019 near Ilulissat, Greenland. The Sahara heat wave that recently sent temperatures to record levels in parts of Europe is arriving in Greenland. (Photo by Sean Gallup/Getty Images)
Griffin added the amount of “unpriced risk” in the energy market is significant, noting this is what causes the Great Recession. “Right now, energy companies shoulder much of that risk. The market needs to better assess risk, and factor a risk of extreme weather into securities prices,” he explained.
He specifically cited the excessive-high temperatures that were felt in the Europe and U.S. last summer as events that could be detrimental not only to human health, but disrupt agriculture and the energy supply.
Last year, California utility company PG&E cut power to hundreds of thousands of people across the state because of weather-related events.
These events have continued to put a strain on the local and broader economies, but the risks have not been seen yet, Griffin warned. “Loss of property is what grabs all the headlines, but how are businesses coping? Threats to businesses could disrupt the entire economic system.”
The newly published study follows several others in recent months that have tied in extreme weather and climate-related events to negatively impacting the economy.
A study circulated by the National Bureau of Economic Research in August, suggested that “virtually all” nations will be negatively affected by climate change by 2100 if they do not abide by the 2015 Paris Agreement.
In June, the United Nations Human Rights Council published a report that warned of a potential “climate apartheid,” splitting the planet between the wealthy and the rest of the world who will be “left to suffer.”