Quantifying the risks and implications of potentially catastrophic climate-related tipping points for the economy and financial system is extremely difficult. Second, there is substantial uncertainty about the nature and timing of the policy, behavioral, and technological changes that will occur during the transition to a sustainable economy. This uncertainty could create significant challenges for financial stability.
In addition, climate change might be expected to increase financial system vulnerabilities. 11 Financial system vulnerabilities could arise if intermediaries engage in financial contracts or take on leverage to shift climate risk in ways that leave the overall system vulnerable to the amplifying effects of shocks.