Starjournal Quotation Battiston, Stefano, Monasterolo, Irene, Riahi, Keywan, van Ruijven, Bas. 2021. Accounting for finance is key for climate mitigation pathways. Science. 372 (6545), 918-920.


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Abstract

The financial system—the ecosystem of investors (e.g., banks, investment funds, insurance), markets, and instruments—is often considered to play an enabling role in climate mitigation pathways to a low-carbon transition (1). But it can also have a hampering role, e.g., if investors' perceptions of low risk from a missed transition and low opportunities from a transition fail to trigger a reallocation of capital into low-carbon investments. This increases the chance of the transition not occurring within the time window required to stabilize the climate or occurring in a disorderly fashion. Indeed investors, who can influence the realization of climate mitigation pathways, themselves rely on estimates of climate mitigation pathways from process-based integrated assessment models (IAMs) (2). And IAMs do not model the financial system or investors' decisions; thus, the feedback loop between the financial system and mitigation pathways is not taken into account, neither by the IAMs nor by the finance community. This limitation to our understanding of the dynamics and the feasibility of the low-carbon transition weakens the ability of IAMs to inform policy and investment decisions. We propose a framework to capture the interdependence between investors' perception of future climate risk, depending on the credibility of climate policies, and the allocation of investments in the economy.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Science
Citation Index SCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Accounting for finance is key for climate mitigation pathways
Volume 372
Number 6545
Year 2021
Page from 918
Page to 920
Reviewed? Y
URL https://www.science.org/lookup/doi/10.1126/science.abf3877
DOI https://doi.org/10.1126/science.abf3877
Open Access N

Associations

People
Monasterolo, Irene (Details)
External
Battiston, Stefano (University of Zurich, Switzerland)
Riahi, Keywan (IIASA, Austria)
van Ruijven, Bas (IIASA, Austria)
Organization
Institute for Ecological Economics IN (Details)
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