green swans

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By PEDRO LANGE NETTO MACHADO*

Concerns about the effects of global warming and the environmental degradation that aggravates it now give rise to the development of a new concept

In 2007, mathematician Nassim Taleb presented the concept of “black swan” to refer to rare, unpredictable events that produce strong socioeconomic impacts on a systemic scale. In the globalized world we live in, the idea is particularly relevant for the financial market, since the models used in the risk assessment of investments are vulnerable to events of this type. Notorious examples of black swans were the September 11, 2001 terrorist attacks and the 2008 global financial crisis – both unexpected events that suddenly destabilized the planet.

Concerns about the effects of global warming and the environmental degradation that aggravates it now give rise to the development of a new concept. In January[I] and may[ii] In 2020, studies published by the BIS called “green swans” events similar to black swans, but whose origins refer to climate change. Although less uncertain, given the information available about the risks of global warming and how to cool it down, green swans tend to have even more serious effects, because they put the very existence of humanity in jeopardy. The form they assume are varied and unpredictable, ranging from clouds of locusts that devastate plantations around the world.[iii] to heat waves and pandemics like the one we are experiencing today.

As with black swans, the occurrence of green swans can impose severe financial losses on investors. But due to the short-term horizon of its decisions and its risk quantification models, which are guided by past events, risks related to the impacts of global warming are not priced. Hence, in part, the concern of the BIS and of academic researchers who have been dealing with the subject recently: how to financially manage this reality?

Parallel to the diagnosis of the seriousness of the environmental issue also for the financial world, the second decade of the XNUMXst century witnessed the rise of political movements and governments that deny the climate crisis and end up aggravating it. In Brazil, the Bolsonaro government takes advantage of the pandemic to “pass the cattle” over the ashes of the Pantanal and the Amazon rainforest. In the United States, the Trump era is coming to an end, but it will leave consequences for humanity, especially in the international concertation for a more sustainable development model. In any case, the fact is that denialists proliferated around the world, often elected by popular vote.

What has been motivating citizens to elect the populists of our time is a complex question, which already structures research agendas and risks remaining unanswered in the future. Plausible hypotheses, however, point to the negative effects of the globalization process on Western economies, which have been experiencing decades of economic stagnation, income concentration, deindustrialization, growing unemployment and job insecurity. Pervading the configuration of this critical scenario, the neoliberal agenda implemented by governments, on the right and left of the political spectrum, has sought to signal to the financial market the commitment to its interests, even if to the detriment of those of voters.

The underlying logic is that both would coincide. In this sense, the trust deposited by investors in the economy should revert to benefits for society, given the consequent attraction of capital that it entails. But the cost to conquer it, commonly reflected in the imperative of fiscal austerity and in the agenda of liberalizing economic reforms, has been proving to be questionable. In addition, the nature of these investments, largely aimed at speculation in the global financial circuit, is not necessarily benign for the country either. Thus, despite the tendency to minimize the presence of the State in these economies and the progressive dismantling of social welfare policies that have been observed, the realization of the promises of globalization is – at least – questionable in the Western world.

As a result, disillusioned with the establishment political, citizens resort to candidates supposedly “outsiders” and antisystem, which politically capitalize on popular frustration and indignation with the context of socioeconomic decay. These leaders win the right to govern at the ballot box, but soon act to sabotage the representative institutions through which they ascended to power. During the process, they make use of political diversionism that feeds conspiracy theories, discredits science and undermines intra and international cooperation to combat common problems. They deny the seriousness of the climate issue and the pandemic, attribute nationality to viruses and vaccines and end up politicizing public health.

If it is true that populist success stems from the failure of the neoliberal agenda and globalization in some countries, the same reason then enhances the occurrence of green swans. This is because, under elected denialist governments, the necessary measures to cool down global warming are not only not taken, but actions that go against this purpose are often encouraged by them. For the financial market, this reality represents a crossroads: the same economic policy prescription that seeks to guarantee the confidence of its agents seems to be indirectly amplifying environmental risks, which are not even considered in investment risk projection models, but which can charge a high price in the future.

Faced with the threat that the climate issue poses to different dimensions of human life, it should not be necessary to resort to trade-offs financial risk-return to treat it with due seriousness. In any case, as the weakening of liberal democracy has been associated with the deterioration of the environment, it becomes urgent to highlight the intersection in which both feed back. This also implies the imperative that the two problems be overcome together: regenerating the quality of democratic representation, so that it is politically viable to promote measures in favor of sustainable development.

*Pedro Lange Netto Machado is a doctoral candidate in Political Science at IESP-UERJ.

 

Notes


[I]https://www.bis.org/publ/othp31.pdf

[ii]https://www.bis.org/speeches/sp200514.pdf

[iii]https://www1.folha.uol.com.br/mercado/2020/06/ministerio-declara-emergencia-em-rs-e-sc-para-combate-de-gafanhotos.shtml

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