Climate Risks and Capital Markets: Wildfires in California

Nancy Wallace Professor and Chair of the Real Estate Group, Lisle and Roslyn Payne Chair in Real Estate and Capital Markets, Co-Chair, Fisher Center for Real Estate and Urban Economics, Berkeley Haas

Two recent seminal reports—one from the Task Force on Climate-related Financial Disclosures (TCFD) chaired by Michael Bloomberg, and the second from the Climate-Related Market Risk Subcommittee (CRMRS) of the U.S. Commodity Futures Trading Commission—have laid out blueprints for action to manage climate risk in the global financial system. As these reports clearly outline, climate change is increasing the frequency and severity of extreme impacts, leaving the financial system increasingly exposed to systemic risk. Importantly, the TCFD recommendations emphasize that climate risks to the financial system are both physical (asset vulnerabilities to climate extremes) and transitional (financial risk associated with the transition to a low-carbon economy). Both reports emphasize the need to quantify risk across the range of potential climate and emissions pathways. This talk will focus on recent research at the Fisher Center for Real Estate and Urban Economics that quantifies the growing wildfire risks in California and the implications of these risks for property valuations in the state, mortgage markets, and the pricing of fire casualty insurance in the state.