Precarity is now central alongside vulnerability, risk, and uncertainty. Covid-19 has heightened the precariousness of labour markets, the vulnerability of individuals and the fragility of banks and businesses which could all be the product of markets, tenancies, past tragedies, and inequalities. An overlapping problem allied to “Vaccine Colonialism” and the future infectiousness of viral variants that maps one-to-one on mitigating climate change is patent waivers. Dampened willingness to “transfer” patented technology from developed economies, where most of the germane know-how resides, to poorer economies, where most future emissions will occur, is complicated.

It is one of the most multifaceted and polarizing issues in the climate dialogues, that invokes deep-seated strains as it bears directly on national treasuries, miscellaneous commercial interests, and ultimately on countries’ competitive positioning in the burgeoning low-carbon economy. Undeveloped economies have for years called upon their wealthier counterparts for knowledge transfer to assist with mitigation. But even during the pandemic, poorer countries got sparse assistance from developed nations. Even when statistically COVID-19 is amassing about twelve months of age-specific mortality risks into seven to fourteen days following infection with coronavirus.

Except Taipei, that received 2.5 million doses of Moderna as part of Biden’s “Vaccine Diplomacy”. This does not inspire confidence among poor countries waiting for unfettered transfers of patented technologies to mitigate climate change. Technology transfer is neither linear nor straightforward. It reflects a far-flung web of interrelated processes mediated by markets and governments on multiple fronts. The IDB’s Office of Oversight and Evaluation noted that due to their size and position, Small Island Developing States are matchlessly susceptible to the impacts of climate change as these economies are significantly impacted by the ongoing rise in sea levels, changes in precipitation patterns and temperatures, and increasing intensity of natural disasters.

Extreme weather could quintuple the cost of insurance claims by 2050 and loan losses could heighten ominously compared with the doubling during the coronavirus pandemic. Wealthy nations recognize that climate risks are financial risk and banking supervisors are drawing on scenarios published by the Network for Greening the Financial System. To create a vigorous management of climate-related financial risks, The Bank of England (BoE) has set out its first comprehensive stress-test of the ability of the British financial system to cope with climate vulnerability. The test will scrutinise the resilience of the country’s nineteen biggest banks and insurers, including Barclays, HSBC, and the Lloyd’s of London insurance market, to stresses from the shift to a net zero-carbon economy over future decades as well as the impact of extreme weather conditions.

The test will focus on the credit risk associated with their banking book, especially the risks to large corporate counterparties. For insurers, the stress-test will focus on changes in invested chattels, reinsurance recoverables and insurance liabilities, including accepted reinsurance. It is the first time both banks and insurers are being tested to allow the UK government to capture interactions between them and understand the risks presented by climate change across the financial system.

Regulatory stress testing is expanding rapidly with a clear focus on environmental policies. The tests will not test capital adequacy but may lead banks and insurance companies to look more closely at whether they need to hold more capital to shield latent losses from climate-change risks. The Monetary Authority of Singapore published their guidelines in 2020 and the results of their stress-test are expected in 2022. The Bank of Canada, Office of the Superintendent of Financial Institutions, made their announcement in November 2020. Scenarios will be released in 2021. The BoE has set its test for June 2021 and results will be published in 2022.

The Australian Regulatory Prudential Authority designed its test in 2020 and will execute its test in 2021. Brazil’s, Banco do Central Brasil announced its intentions on September 8, 2020 and their results are expected in April 2022. France’s L’Autorité de contrôle prudentiel et de résolution (ACPR) conducted its test in December 2020. On May 4, 2021, the “ACPR” published a first assessment of financial risks stemming from climate change and the key results of a climate pilot exercise shepherded between July 2020 and April 2021 and covering nine banking groups and fifteen insurance conglomerates, including several public sector financial institutions, together representing 85% of French banks’ total assets and 75% of French insurers’ technical provisions and assets, respectively.

Ben Caldecott at Oxford estimates that the cost to finance new fossil fuel infrastructure is rising while the cost for green energy is falling fast, with onshore and offshore wind declining by an average of 24 per cent and 12 per cent, respectively. The steeping in the cost for long term finance compared with short term debt is likely for carbon intensive issuers.  Central Bankers must therefore separate the noise from a clear signal in the midst of all this uncertainty.

Climate stress tests will be the most consequential change in financial regulations since the 2008 financial crisis. These climate tests could be highly catalytic in repricing the cost of capital. Central Bankers are not climate aficionados, but summonsing scenarios will alter risk management frameworks that cause climate risk to be labelled as financial risk.