The price of oil is dropping and that is a very frightening situation for financial risk managers. You think that I am only speaking about the energy sector – let’s face it lower revenues results in lower profits so then there will need to be a cut in expenses which means a cut in jobs and other fixed costs.
But what about the longer term impact on the financial sector? Laurence Loubieres, an Associate Analyst with Sustainalytics, wrote a thought provoking article in 2010 on the effects of climate change on the insurance industry. In 2009, 9 out of 10 of the top financial losses were related to weather and climate change. Payouts that year exceeded $US 20 billion.
and you wonder why your insurance premiums are higher?
If oil continues to drop, the people who do not believe in climate change will no longer have the financial dis-incentive to change their consumption behaviour. In other words, they will probably look for more fossil fuel solutions to meet their own immediate needs.
The cost of carbon will be included in our markets one way or another. If we do not see the cost in terms of climate change, we will see it with insurance premiums. The fear is that there is an indirect link to the cause of climate change because the cost of oil is so low.
…just research as you prepare your portfolio….