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

Utrecht University

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Stefano Battiston

University of Zurich - Department Finance; 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 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)

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

Monica Billio

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
Venezia 30121
Italy
+39 041 234 9170 (Phone)
+39 041 234 9176 (Fax)

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 Finance ( email )

Plattenstrasse 32
Zürich, 8032
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

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