Understanding systemic risk induced by climate change

Abstract

The systemic risk induced by climate change represents one of the most prominent threats facing humanity and has attracted increasing attention since the outbreak of the COVID-19 pandemic at the end of 2019. The existing literature highlights the importance of systemic risk induced by climate change, but there are still deficiencies in understanding its dynamics and assessing the risk. Aiming to bridge this gap, this study develops a theoretical framework and employs two cases to illustrate the concept, origin, occurrence, propagation, evolution, and assessment framework of systemic risk induced by climate change. The key findings include: 1) systemic risk induced by climate change derives from the rapid growth of greenhouse gas emissions, increasingly complex connections among different socioeconomic systems, and continuous changes in exposure and vulnerability; 2) systemic risk induced by climate change is a holistic risk generated by the interconnection, interaction, and dynamic evolution of different types of single risks, and its fundamental, defining feature is cascading effects. The extent of risk propagation and its duration depend on the characteristics of the various discrete risks that are connected to make up the systemic risk; 3) impact domains, severity of impact, and probability of occurrences are three core indicators in systemic risk assessment, and the impact domains should include the economy, society, homeland security, human health, and living conditions. We propose to deepen systemic risk research from three aspects: to develop theories to understand the mechanism of systemic risk; to conduct empirical research to assess future risks; and to develop countermeasures to mitigate the risk.