Climate Change - Financial Implications for Households

A TFI-CEPR webinar event September 9 2020
Posted on September 14, 2020

On September 9th, CEPR and TFI joined forces with international experts to explore how our changing climate could soon hit household finances in new and unexpected ways.

A part of a joint initiative - The Household Finance Seminar Series - we've partnered with the Centre for Economic Policy Research, to research and share findings on areas of economic and social change that will directly impact household finances, both now and in the near future.

Topics covered in this seminar series include: Financing retirement and the demographic transition; Consumer indebtedness, financial distress, and default decisions; Trust, subjective expectations, pessimism, and financial decisions; Financial innovation and household finances and Households liquidity and risk management - to name just a few - with the focus of this particular event being 'Climate change, sustainability, and household finances'.

The event was organised by Johannes Stroebel from New York University, with a Welcome by Michael Haliassos (Goethe University Frankfurt and CEPR) and Mark Cliffe (ING). And speakers on the day were:

Samuli Knüpfer (BI Norwegian Business School and IFN) and Johannes Stroebel (New York University) - Opening Remarks

Stefano Giglio (Yale SOM)

Nat Keohane (Environmental Defense Fund)

Bob Litterman (Kepos Capital and Chairman of the CFTC's Climate-Related Market Risk Subcommittee)

Nancy Wallace (Berkeley Haas)

If you missed it, you can catch-up on all the action on YouTube, here:

“Climate change, whether it be rising sea levels or apocalyptic weather events, needs to be priced into the world's financial system to protect it from failure”

Our friends at ING Think, also kindly signed-up journalist Jeremy Gaunt to cover the event, and we've shared a few highlights of his report below.

"Climate change, whether it be rising sea levels or apocalyptic weather events, needs to be priced into the world's financial system to protect it from failure -- and the sooner the better."

This, in a nutshell, was the alarming message for households given by academic and financial experts.

The impact of global warming, they said, is currently not incorporated properly into mortgages, insurance policies or even the stock market in terms of the cost and impact of greenhouse gas emissions.

In particular, households without balance sheets are very much exposed to climate change risks - and not only in developing countries.

It is not, however, beyond the world's scope to change.

'Lenders have no idea how to price the risk (of climate change),' Wallace, a real estate specialist said, underlining just one of the problems facing both households and the financial system in general.

The U.S. securitised residential mortgage markets, for example, have some $1.5 trillion in exposure to California, where more than 1.42 million hectares of land has burnt in the past fortnight alone, she said. Such fires are blamed on rising temperatures and diminished rainfall.

'This is not about long-term horizons,' Wallace said. 'The social costs of climate change are being felt (in households) right now.'

'There are massive economic damages to the U.S. economy and the economy more broadly from unchecked climate changes,' Nat Keohane, senior vice president of the Environmental Defense Fund said. '(These damages) will filter down to households.'

But he argued that the economic costs of combatting climate change -- through, say, emissions pricing -- were manageable.

Litterman, who is also chairman of the U.S. Commodity Futures Trading Commission's (CFTC) Climate-Related Market Risk Subcommittee, said introducing carbon pricing -- capturing the cost to the environment of greenhouse gas emissions and essentially charging it to the emitter -- was inevitable.

'Right now we are not pricing emissions appropriately,' he said. 'It is a complicated trade-off between consumption today and potential impacts on future well-being.'

But he said the costs of doing something about it now are much smaller than the social, natural and monetary costs we would have to bear soon from inaction.

'The urgent next step is globally harmonised incentives to reduce emissions', Litterman concluded."

You can read the complete piece here.

Used with permission from ING Think.

Learn more about the CEPR-TFI Household Finance Seminar Series, and register for upcoming events, here.