FMjee, we have a problem: internalisation of uncertainties due to disruptions in Nature in Indian financial system

Biodiversity losses lead to disruptions in climatic attributes. The resulting impacts — including those on economic systems — are gaining visibility across geographical spaces. ‘Extreme Weather’ events are its most dramatic form. It leads to massive out-of-pocket monetary losses even if the other costs are not accounted for. These ‘social costs’ originate from ‘negative externalities’ (as per mainstream economics) or ‘cost shifting’ (as per ecological economics). They are created by Nature’s actions, but are almost always triggered by activities that are anthropogenic in nature. Some of these are large and many are small, but the cumulative impact is huge.

The costs are borne both by the private entities (say, owner-cultivator of the inundated farming field) as well as the State (say, administrative bandobasts for shifting residents, issuing warnings, arranging food and shelter to those expected to be affected by a natural calamity, among others). Compensations, if any, to address the losses owing to ‘natural’ causes and ‘natural’ calamities are mere transfers but even the transactional costs of administering them are increasing day by day. All these impacts are real, and affecting different components of supply chains across real sectors from natural rubber to housing (changes in insulation) to electricity generation (inundated mines)... [Read more].