A particularly troubling financial stability state of affairs could entail the materialization of each physical shocks and transition shocks in fast succession. A brutal string of unprecedented natural disasters could spur idling policymakers to lastly act aggressively to stabilize world temperatures. The more time that elapses with out strong policy efforts to facilitate the clean vitality transition, the extra likely it becomes that this transition is carried out in a disorderly style to meet emissions targets. Under such a state of affairs, the financial system may face extreme bodily losses from the intense weather events and losses related to the repricing of high-carbon assets almost concurrently. It’s essential to note that bodily and transition shocks, and an abrupt repricing of affected belongings, may be triggered by the anticipation of physical and transition events—before any such event truly occurs.
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