Climate change is one of the most discussed topics in the world today. Even so, it's easy to misunderstand what it actually is, what causes it, and how it relates to financial institutions. This article explains the basic mechanisms of climate change, shows how they fit together, and allows you to better understand this critical issue.<\/p>\n
1. Atmosphere, weather and climate<\/strong><\/p>\n Starting with the most basic concepts, the atmosphere is the layer of gases surrounding our planet where weather and climate processes take place.<\/p>\n Weather is simply the current state of the atmosphere at a particular place and time; it changes from moment to moment. Weather can be described in terms of temperature, wind, humidity, precipitation, and\/or pressure.<\/p>\n In contrast, climate is the average state of the atmosphere at a particular location over a period of many years, often decades. In other words, climate refers to the weather patterns at a location over an extended period of time.<\/p>\n It's important to understand the difference between weather and climate. Imagine rolling a six-sided die. The daily weather is the result of a single roll of the die, while climate can be thought of as a statistic compiled from many rolls.<\/p>\n The study of weather is known as meteorology, and the study of climate is known as climatology. Although both disciplines seek to understand how the atmosphere works, meteorologists deal with short-term atmospheric processes (i.e., weather), while climatologists deal with long-term atmospheric processes (i.e., climate).<\/p>\n 2. Greenhouse gases and the greenhouse effect<\/strong><\/p>\n Greenhouse gases (GHGs) are gases that are capable of trapping the Earth's heat in the atmosphere. Common greenhouse gases include carbon dioxide (CO\u00a02<\/sub>\u00a0), nitrous oxide (N\u00a02<\/sub>\u00a0O), methane (CH\u00a04<\/sub>\u00a0), water vapor (H\u00a02<\/sub>\u00a0O) and fluorinated gases.<\/p>\n Human activities such as burning fossil fuels, agriculture, and waste disposal, as well as natural processes such as respiration, decomposition, and volcanic activity, release greenhouse gases into the atmosphere. The chemical structures of greenhouse gases cause them to absorb and re-radiate the Earth's heat when they are present in the atmosphere (other atmospheric gases such as nitrogen and oxygen do not). This process is called the greenhouse effect.<\/p>\n Since many types of greenhouse gases occur naturally in the atmosphere at low levels, the greenhouse effect has always played a role in determining the Earth's temperature. However, the vast amounts of greenhouse gases released into the atmosphere from human activities are dangerously amplifying the greenhouse effect.<\/p>\n According to\u00a0Our World in Data<\/strong><\/a>\u00a0The burning of fossil fuels alone has released approximately 37 billion tons of greenhouse gases into the atmosphere. This represents an increase of more than 180,000 % compared to 1850 levels. The increase in the Earth's average temperature and its consequences for weather and climate can be directly attributed to the greenhouse effect.<\/p>\n 3. Global warming and climate change<\/strong><\/p>\n Global warming refers specifically to the net warming of the Earth's surface due to the anthropogenic greenhouse effect. The total anthropogenic increase in global surface temperature since 1850 is currently estimated to be\u00a0Intergovernmental Panel on Climate Change (IPCC)<\/strong>\u00a0estimated at 1.07 o<\/sup>\u00a0C.<\/p>\n Meanwhile, climate change refers to how the Earth's climate is changing through this net warming and how these changes are observable in altered climate and weather patterns.<\/p>\n Although these terms are often used interchangeably in practice, they refer to different sets of phenomena, so it is useful to keep in mind\u00a0cause-and-effect relationship<\/em>\u00a0among them. Greenhouse gas emissions from human activities amplify the greenhouse effect, which causes global warming, which in turn causes climate change.<\/p>\n This distinction is especially important when we talk about their\u00a0influences<\/em>\u00a0, which have been extensively studied by the IPCC. For example, as a direct consequence of global warming, the IPCC found that sea levels are currently rising almost three times faster than they were 50 years ago, due to thermal expansion of the world's oceans and the accelerated melting of glaciers and ice sheets.<\/p>\n Similarly, the IPCC suggests that anthropogenic global warming is a very likely cause of the observed decrease in the number of cold days and the observed increase in warm days and nights on a global scale, due to changes in the Earth's climatological systems (i.e. climate change).<\/p>\n In addition, these climatological changes have led to an observable increase in the frequency and severity of extreme weather events such as hurricanes, floods, heat waves and droughts.<\/p>\n 4. What does this mean for financial institutions?<\/strong><\/p>\n The negative consequences of global warming and climate change stem from their physical impacts, but they go far beyond that. Given that we must decarbonize to minimize global warming and climate change, we must also consider the risks of transitioning to net zero greenhouse gas emissions.<\/p>\n To learn more about the risks and opportunities arising from climate change in the financial sector, read our white paper Managing Climate Risk in Financial Firms: Challenges and Opportunities. The GARP Risk Institute also leads\u00a0glossary<\/strong><\/a><\/span>\u00a0with clear definitions of basic terms related to climate and sustainability, which can be useful if you are just starting out in this space.<\/p>\n