Bank of Canada identifies climate change as important economic weak spot

By Andy Blatchford

The Bank of Canada is highlighting its expanding concerns about climate change and, for the first time, is listing it among the top weak spots for the economy and the financial system.

The central bank’s financial system health report Thursday included climate change as an important vulnerability, elevating it to a category alongside its long-running worries about household debt and apprehension about the housing market.

The assessment is part of the Bank of Canada’s annual report card that explores key weaknesses and risks surrounding the stability of the financial system.

“Economic activity and the environment are intertwined,” said the bank, which, like its international peers, is starting to make climate-change factors part of its financial stability research.

“Most experts agree that the global climate is changing and that this has growing implications for the economy. But the range of possible outcomes is large.”

Climate-change risks include the consequences of extreme weather events, such as flooding, hurricanes and severe droughts.

In Canada, the bank said insured damage to property and infrastructure averaged about $1.7 billion per year between 2008 to 2017 — 8.5 times higher than the annual average of $200 million from 1983 to 1992.

Beyond the physical damage, the bank said the shift to a lower-carbon economy will be complicated and could be costly for some.

The transition will likely lead to complicated structural adjustments for carbon-intensive sectors, such as oil and gas, and could leave insurance companies, banks and asset managers more exposed, the report said. In some cases, the bank said fossil fuel reserves could be left in the ground, which could drain the value of important assets.

The bank said the transformation to a lower-carbon economy also will likely provide a boost to sectors like green technology and alternative energy.

“Both physical and transition risks are likely to have broad impacts on the economy,” the report said.

In addition to climate change, the report also underlined the emerging vulnerability of rising corporate debt levels in the non-financial sector — a growing concern seen in other advanced economies. Some of the borrowing is of lower quality and the situation needs to be monitored closely, the bank said.

Last year, non-financial corporate debt relative to income was at 315 per cent, which the bank said was “well above its historical average.”

full story at https://www.nationalnewswatch.com/2019/05/16/bank-of-canada-identifies-climate-change-as-important-economic-weak-spot-3/#.XN2A2BqVmhB