Odd Lots Josh Younger on the Soaring Cost of Climate Change and Understanding the SLR
Mar 25, 2021
Josh Younger, a managing director at JP Morgan and rates derivative strategist, dives into the intricate connections between interest rates and the costs of climate change mitigation. He discusses the crucial need to reevaluate how we assess climate-related risks using financial frameworks. The conversation touches on the Federal Reserve's SLR decision, its impact on bank balance sheets, and the implications of current treasury market volatility. Younger advocates for integrating economic strategies into climate initiatives, stressing the importance of balancing short-term and long-term considerations.
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Climate Change and Markets
- Climate change discussions rarely connect with real yields and secular stagnation.
- Despite banks' focus on ESG, market perspectives on climate change are scarce.
Cost-Benefit Analysis of Climate Change
- Traditional cost-benefit analyses of climate change connect climate science and economics.
- Integrated assessment models quantify the economic impact of climate change, including mortality projections.
Market Pricing of Climate Risk
- Markets poorly price long-term risks like climate change due to short-term incentives.
- Market prices reflect current regulatory expectations, not long-term climate risks.