The Importance of Compound Risk in the Nexus of COVID-19, Climate Change and Finance

Posted: 8 Jun 2020 Last revised: 25 Jun 2020

See all articles by Irene Monasterolo

Irene Monasterolo

Boston University; Vienna University of Economics and Business

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia

Stefano Battiston

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; Ca Foscari University of Venice

Date Written: June 8, 2020

Abstract

Current approaches to manage the COVID-19 pandemic have a narrow focus on public health and on the short-term economic and financial repercussions. This prevents us to look at how pandemic risk interplays with sustainable and inclusive development goals in the next decade. To fill this gap, we analyse how risk can compound in the nexus of non-linear interactions among pandemic, climate change and finance. We show that neglecting compound risk can lead to a massive underestimation of losses, which can be amplified by financial complexity, as well as to policies that impose unnecessary trade-offs among the economic recovery, health and climate objectives. To address these challenges, we propose an interdisciplinary research agenda to inform effective policies and improve the resilience of our socio-economic systems.

Keywords: pandemic, climate change, climate finance, financial risk, compound risk

JEL Classification: G0, Q5

Suggested Citation

Monasterolo, Irene and Billio, Monica and Battiston, Stefano, The Importance of Compound Risk in the Nexus of COVID-19, Climate Change and Finance (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=3622487 or http://dx.doi.org/10.2139/ssrn.3622487

Irene Monasterolo (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Stefano Battiston

University of Zurich - Department of Banking and Finance ( email )

Andreasstrasse 15
Z├╝rich, 8050
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

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