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

8 Pages Posted: 7 Jan 2021

See all articles by Irene Monasterolo

Irene Monasterolo

EDHEC Business School

Monica Billio

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

Stefano Battiston

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

Date Written: June 20, 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: COVID-19, climate change, financial interconnectedness, compound risk, loss amplification, resilience policies

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 20, 2020). Available at SSRN: https://ssrn.com/abstract=3635335 or http://dx.doi.org/10.2139/ssrn.3635335

Irene Monasterolo (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

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 of Banking and Finance ( email )

Andreasstrasse 15
Z├╝rich, 8050
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

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