Risk Management
Published  8 MIN READ

When Black Swans Turn Green

The coronavirus (Covid-19) is the latest black swan to blight the financial markets. But it’s not only black swans that treasurers need to recognise the importance of – grey and green swans are equally deserving of attention.

In his 2007 book The Black Swan: The Impact of the Highly Improbable former options trader Nassim Nicholas Taleb discussed the effect of rare and unpredictable occurrences that have extreme impacts and how, with hindsight, people tend to look for simple explanations for them. This is the definition of a ‘black swan’ event.

But now we’re talking about ‘green swans’ – a kind of ‘climate black swan’. These could be the most dangerous of all because of their tendency to be exceptional, unpredictable and sudden. Of course, a ‘natural’ catastrophe is not always foreseeable: think of the 2011 earthquake and tsunami off the Pacific coast of Tōhoku and the subsequent Fukushima Daiichi nuclear disaster, and other earthquakes, especially in Turkey in January this year and in Italy in 2017.

Climate disasters could have cascading consequences and set off chain reactions with unpredictable effects. The speed with which they materialise is often greater than expected, if they are expected at all. Their consequences could be more disastrous than any systemic financial crisis, since they could threaten all humanity, as some climate scientists predict.