Why Scientists and Finance Professionals Disagree on Climate Risk

In climate and environmental science, risk is understood as the threat of bad things happening. It is widely accepted that many of the threats and dangers of climate change are not quantifiable until after they may have materialised. This is because scientists worry about the cascading risks of climate change and biodiversity loss. For example: natural disasters could create widespread crop failure. This could ripple out into food export bans, food insecurity, civil war, international conflict, refugees, and the wholesale collapse of local economies and societies. These cascading effects are impossible to quantify.

In the world of economics and finance, risk is traditionally understood as a probability measure over a range of outcomes, multiplied by gains and losses associated with these different outcomes. In economics, there is an implicit expectation that risks are quantifiable. If it can't be quantified, it is usually called 'uncertainty'. 

Climate scientists and financial professionals were asked two questions. 

1. Is risk, to you, mostly unquantifiable or mostly quantifiable?

2. Does your understanding of ‘conservative risk estimate’ focus on the side of least drama or on the worst that can happen?

Climate scientists answered that risk is mostly unquantifiable and that their understanding of conservative risk estimates focuses on the end of least drama. On the other hand, financial professionals answered that risks are mostly quantifiable and that their understanding of conservative risk estimates focus on the worst case scenario. This means that finance professionals are expecting information about quantifiable gains and losses when they hear 'climate risk' from the scientists. They are expecting to be told the worst case scenarios whereas climate scientists are trying to be conservative in their estimations, leading to a gap in their perceptions.