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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Why Scientists and Finance Professionals Disagree on Climate Risk

Why Scientists and Finance Professionals Disagree on Climate Risk

Kris De Meyer

16 years: Neuroscientist

How do you understand risk? More importantly, do others understand risk in the same way as you? Join Kris De Meyer as he uncovers different perceptions of risk and how they affect views on climate change.

How do you understand risk? More importantly, do others understand risk in the same way as you? Join Kris De Meyer as he uncovers different perceptions of risk and how they affect views on climate change.

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Why Scientists and Finance Professionals Disagree on Climate Risk

9 mins 43 secs

Overview

In climate and environmental science, risk is understood as the threat of bad things happening. In the world of economics and finance, risk is traditionally understood as a probability measure over a range of outcomes, multiplied by gains and losses associated with these different outcomes. For scientists, climate risk is unquantifiable which leads them to be conservative in their risk estimates. Financial professionals believe risk is quantifiable which leads them to focus on worst case scenarios. This gap in understanding leads to each field understanding the risks of climate change differently.

Key learning objectives:

  • Understand how climate scientists understand risk

  • Understand how finance professionals understand risk

  • Outline where scientists and finance professionals land on perceptions of climate risk

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Summary
What do climate scientists mean by risk?

In climate and environmental science, risk is understood as the threat of bad things happening. It is widely accepted that many of the threats and dangers of climate change are not quantifiable until after they may have materialised. This is because scientists worry about the cascading risks of climate change and biodiversity loss. For example: natural disasters could create widespread crop failure. This could ripple out into food export bans, food insecurity, civil war, international conflict, refugees, and the wholesale collapse of local economies and societies. These cascading effects are impossible to quantify.

What do finance professionals mean by risk?

In the world of economics and finance, risk is traditionally understood as a probability measure over a range of outcomes, multiplied by gains and losses associated with these different outcomes. In economics, there is an implicit expectation that risks are quantifiable. If it can't be quantified, it is usually called 'uncertainty'. 

Where do scientists and finance professionals land on perceptions of climate risk?

Climate scientists and financial professionals were asked two questions. 

1. Is risk, to you, mostly unquantifiable or mostly quantifiable?
2. Does your understanding of ‘conservative risk estimate’ focus on the side of least drama or on the worst that can happen?

Climate scientists answered that risk is mostly unquantifiable and that their understanding of conservative risk estimates focuses on the end of least drama. On the other hand, financial professionals answered that risks are mostly quantifiable and that their understanding of conservative risk estimates focus on the worst case scenario. This means that finance professionals are expecting information about quantifiable gains and losses when they hear 'climate risk' from the scientists. They are expecting to be told the worst case scenarios whereas climate scientists are trying to be conservative in their estimations, leading to a gap in their perceptions. 

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Kris De Meyer

Kris De Meyer

Kris De Meyer, a neuroscientist at University College London, believes climate change is a 'people problem' influenced by how people perceive risk, communicate, and think about societal change. The Climate Action Unit aims to bridge communication and understanding gaps between different experts, such as climate scientists and decision-makers in policy, business, and finance, to address climate change and its impact on society.

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