Steering the wheel from The Black Swan to The Green Swan

The COVID-19 pandemic is all set to go down in the pages of history as a ‘Black Swan’ event. It has often been referred to so, owing to its unexpectedness, unprecedentedness, and extremity of impact. However, while the world still juggles to accommodate the evolving demands of the pandemic, yet another challenge stares straight into our eyes – climate change! And the risks arising from climate change are being referred to as the ‘Climate Black Swans’ or ‘Green Swans,’ under the aegis of the Bank for International Settlements (BIS). And as Zwick (2020) states, “Coronavirus is bad, but the green swan is worse.” Though carrying many features of the black swans, green swans are believed to be more cascading in their impact – they are not only expected to have severe financial implications, they threaten the very existence of humanity, as highlighted by climate scientists. The environmental mishaps taking all across the globe, viz. the rising instances of floods and hurricanes, the unexplainable changes in the weather patterns, and the rising sea levels, are all traceable to climate change. The only silver lining – we have the opportunity to act and amend ourselves before our existence stands at stake.

Different stakeholders across the globe have endeavored to contribute towards combating the climate change challenges in their respective capacities. At the global level, the United Nations (UN) came up with a secretariat – United Nations Framework Convention on Climate Change (UNFCCC) – to support the responses across the world. The recently concluded Climate Change Conference, 26th in its series, is one of the many initiatives under the secretariat. One of the key targets that global efforts are directed towards is to keep the concentration of greenhouse gases in the environment under check. At the regional level, the UN established Regional Collaboration Centres (RCCs) to better enable the respective nations to adhere to climate change tasks under their belt. This involves equipping them technically as well as strategically. At the national level, economies endeavor to achieve their imperative targets in line with the global call, which includes policy-level modifications, framing of new bodies, introducing incentives for different players, etc. Scientists and academicians around the world are playing pertinent roles by undertaking insightful research, designing courses, offering hands-on assignments, etc., thereby enriching the world’s understanding of this pressing issue. The corporate bodies are playing their bit by altering their existing processes and practices to accommodate the climate needs, devising instruments like green bonds, undertaking pro-climate projects and offering internships in them, etc., among other initiatives. Recognizing the possibility that the climate change risks could drive the world towards another systemic financial crisis, the finance experts under the aegis of BIS identify roles that could be played by central banks and regulators and propose measures that could be taken towards the same. With the initiatives pouring in from different stakeholders, the world is progressing towards its goals. However, the progress comes interwoven with challenges.

Like every other project, one of the indispensable inputs to run the project of ‘taming the green swans’ is Finance. And when the project involves parties across the globe, it is a no-brainer that the finances required would be of the matching magnitude. The actions required to address the challenges of climate change demand significantly on high investments, for altering the existing non-compliant investments, and for mitigating the existing adverse impacts to the climate. ‘Climate finance’ is what is referred to as the financing targeted towards aiding the requirements of climate change actions. These originate from different sources, ranging from private to public to alternative sources, and can be local, national, or even multinational. However, arranging funds for climate finance is a daunting task in itself, another major challenge that it brings with it is the fact that not all economies are equally capable of arranging the same. While the developed countries are able, the developing or less developed need not be so. Another argument justifying the differential role to be played by different economies is their differential journeys on the path of development so far – while developed economies had the privilege to focus on their development without considering the ‘climate change’ aspect, the countries which are to embrace the same phase of the journey now have an additional charge to account for on their shoulders.

This calls for yet another ingredient required for the successful taming of this gigantic problem – cooperation. While these developing and under-developed nations in a silo can take actions in their respective capacities, the efforts would not be enough to contain the changing climate. The finance required is often too huge to afford. Taking the case of India for instance, an amount that is expected to suffice the demand of climate change plans till the year 2030 is to the tune of the country’s current level of GDP! Acknowledging the situation, developed countries have come forth to contribute towards the financing requirements of the developing ones as well. However, the contributions so far fall short of the targeted figures, highlighting yet another challenge. With the financing targets being missed, the pace of the journey is to take a hit. While the possible consequences are far from the sight at present, it is difficult to ascertain the distance, and it is often opined by the climate scientists to remember, drawing parallels with the safety warning on vehicles’ rear-view mirrors, that ‘objects in the mirror are closes than they appear’.

To summarize, the green swan risks lurking us all demand a cohesive approach from each of us and at the earliest. While the ultimate consequences are yet uncertain, there is a certainty of them being there. And as the age-old adage goes, “a stitch in time saves nine”, there is no sooner time for us to realize, the way Ben Thomas (Will Smith) announces in the 2008 movie Seven Pounds, “IT’S TIME”! Indeed, it’s time we expand our focus from merely the black swan to the swan of the other colour as well.