When Climate Change Knocks on the Finance Minister’s Door

Traditionally, the management of climate change issues has been the responsibility of environment ministers. However, due to its cross-cutting nature to international commitments and its growing impact on the economy and fiscal governance, finance ministers are called upon to play a key role in this matter. Indeed, finance ministers can no longer ignore the dangers that climate change poses to the real economy, financial stability, and public finance. Climate-related risks—both physical climate risks and climate transition risks—can affect public finance through both microeconomic and macroeconomic transmission channels. Indeed, climate-related risks could cause direct and indirect fiscal impacts thereby deteriorating public finance. Due to the effects of climate change, the government, and in particular the finance minister, may be called upon to play a kind of “lender of last resort” or, more precisely, the role of “insurer or bailout provider of last resort” for families, companies or even financial institutions. Despite some uncertainties, geographical heterogeneity, and different legal systems, there is a strong likelihood that, to a greater or lesser extent, climate change will increasingly pose a challenge to public finance in the various jurisdictions.