Analysis - Financial Times article - Lex in depth: how investors are underpricing climate risks

Of course investors are underpricing climate risks in the long run. But based off the way the game is played, they're absolutely pricing in the risks - and that's the problem.

Yes - we're starting to see impacts in the markets as far as physical risks are concerned (i.e. All State / State Farm pulling back on underwriting new insurance policies in CA, FL). And there's even evidence that banks price in flood risks based off FEMA maps.

The issue is that banks generally don't think beyond a 5 yr time horizon. No single 5 yr time period will experience rapid enough climate change where banks can't manage the risk. Sure, over time smaller banks and investors will fail - they're not as diverse and are far more concentrated than larger banks. Larger banks, meanwhile, can weather the storm (no pun intended). Banks, investors, and profits don't care about the long run. This, of course, is Mark Carney's tragedy of the horizons.

We're in the boiling frog analogy, except we won't jump out because we'll just indefinitely try to adapt.

The big danger is of a “climate Minsky moment”, the term for a sudden correction in asset values as investors simultaneously realise those values are unsustainable.

Personally, I don't see a Minsky moment occurring with climate. The system will consolidate to the biggest players in the game and inequality will just get worse. Ultimately, if the financial sector is going to get serious about contributing to the fight to curtail anthropogenic climate change, than we can't keep trying to apply solutions built on premises of the status quo. The rules of the game need to change.