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A Wall Street Veteran’s Views on Climate Risk Management

Posted: 06.21.2017 no comments


Read the entire article at The Hill.


I’m a Wall Street risk manager. As an employee, a partner and, for four years, the risk manager at Goldman Sachs, I served many chairmen, including Bob Rubin, Hank Paulson and Lloyd Blankfein, who leads the firm today. Every one of them has always understood that managing risk is vital to the firm’s financial success and always a priority.

The same holds true for managing the risks of climate change. Unfortunately, too many of our leaders seem oblivious to basic principles of prudent risk management. The presence of uncertainty is no justification for inaction. In fact, the opposite is true.


In my business of investment banking, the risks we move to avoid are not nearly as threatening or potentially deadly as those posed by climate change, which has the potential to be a national and global catastrophe. But our policies aren’t reflecting the magnitude of that risk. Any professional risk manager who acted in such a way wouldn’t stay employed very long.


There are three important lessons from financial risk management that are key as we confront the challenge of climate change:

1. We have to pay attention to worst-case scenarios. That is what risk management is all about.

2. The issue is not minimizing risk; the issue is pricing risk appropriately.

3. A risk management problem is an urgent priority. Time is a scarce resource.


Climate risk is directly in front of us today. Science has given the warning. We aren’t certain what will happen, but we know it could be catastrophic in terms of storms, flooding, droughts, sea-level rise and the loss of life and property. This is not an ease-on-the-brakes scenario; it’s time to slam on them. The only brake that will work at the scale required is the incentive that we now need to create, as a global society, to reduce greenhouse gas emissions.  


Choosing not to price climate risk appropriately is insane. Every generation that follows ours will suffer if we do not brake in time. Think of it as a very serious bug in the global operating system.