While climate change may not have an obvious connection to the financial industry at first glance, Alessandro Cocco, vice president of the Financial Markets Group at the Federal Reserve Bank of Chicago, drew clear lines between the two for his audience on Wednesday during MarketsWiki Education’s “World of Opportunity 2020.”
The word that connects climate change and finance is “risk,” Cocco said, a term familiar to those working in and studying the financial markets. In the case of climate change, that risk can be physical, through property damage, and economic, which can be either foreseeable or impossible to predict.
“If a climate event takes place. it results in financial risk and liability risk,” he noted, adding that extreme climate events are happening more often. Risk managers look at the experiences of the past to manage present events, “but what happens when you can’t predict the next event?” he asked.
The Fed’s research group is looking at which organizations are engines of innovation, he said. “What are the measures of success” to make sure things are different than they were in the past?
Cocco said the experiences of the 2008 financial crisis and the current COVID-19 pandemic have taught us multiple lessons about risk, including the interconnectedness of financial systems, the impact of the global supply chain and the compounded effect of climate change.
“Ask some questions” of your prospective employers, Cocco told the webinar attendees. Large investment managers are paying attention to these issues, he said, and the success of a company can depend on its ESG (environmental, social and governance) profile. “At a minimum, keep an eye on this topic.”