The Importance of Compound Risk in the Nexus of Covid-19, Climate Change and Finance
8 Pages Posted: 7 Jan 2021
Date Written: June 20, 2020
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: COVID-19, climate change, financial interconnectedness, compound risk, loss amplification, resilience policies
JEL Classification: G0, Q5
Suggested Citation: Suggested Citation