Economic Risks in Global Markets

For the last part of my Energy Resilience series, we have to talk about the worst-case scenario – when the lights actually go out. Earlier this year we saw that happen in Spain and Portugal. A major blackout left millions without power. Trains stopped, shops couldn’t take card payments, hospitals and factories switched to backup. A wake-up call that modern life depends on electricity in ways we often forget until it is gone.   This is what happens when grids are pushed to the edge by fast-moving disturbances or extreme conditions. A couple of years ago, South Australia experienced a state-wide blackout after severe weather took out multiple transmission lines. Investigations showed the system lacked enough inertia to stay stable through the shock. Part of the solution was to install synchronous condensers – giant flywheels that give the grid “weight” and stability. Siemens Energy delivered two of them as part of the response. Not the only measure of course – adapting regulation is also essential – but it showed something important: without resilience in the system, recovery is slow and uncertain. So what do we actually need if we want a fast ramp-up after a major incident? From my perspective, it comes down to three things. 1️⃣ Standardize before the crisis: When parts fail, every minute spent interpreting drawings or debating specifications is a minute the lights stay out. Standard equipment and uniform processes mean teams can move quickly because they are working with tools they already know. Recovery begins long before the fault happens. 2️⃣ Design power plants with failure in mind: A fast restart depends on assets built to recover quickly, not just run efficiently. That means black-start capability, smart redundancy where it matters and systems that can restart without waiting for the wider grid. In the U.S. for example we supported a power plant with a battery system that enables multiple restart attempts within one hour – resilience designed into the plant itself. 3️⃣ No improvisation in the dark: A blackout is the worst moment to negotiate who does what. Good restoration plans spell out which assets come back first, how to stabilize small sections of the grid and when to reconnect them safely. Regular drills with operators, authorities and major customers turn these plans into routine rather than theory. These steps matter because in any major incident skilled people are often the scarcest resource – grid operators, field crews and technical specialists. That is why preparation matters so much. Clear roles, common standards and trusted partnerships mean limited teams can do more in less time. Because when the worst happens what people remember is how long it stayed dark. I hope you have found this mini-series useful. I know social media is often about speed and short takes but sometimes – especially on important topics like this – I find it worthwhile digging into the detail together.✍️ I’d be interested to hear if you agree.

"Our savings go to the USA, and with it, they buy our companies." With this powerful message, Enrico Letta has recently summarized the conclusions of his report on the future of the Single Market. The EU is home to a staggering 33 trillion euros in private savings, but this wealth is not being fully leveraged to meet strategic needs, with around €300 billion being diverted to markets abroad, primarily to the US, due to the fragmentation of our financial markets. This might seem detached from citizens' and companies' daily lives - a high finance issue that affects a few. However, it means less growth, smaller companies, and fewer resources available to fund better public health, education, and, down the road, pensions. The Banking Union is more of the same, as well as the development of a large European capital market, which would translate into more sustainable growth in Europe and better options for all its citizens. This is why the best entrepreneurs end up - mostly - setting up their new companies in the US instead of Europe. Since 2008, the American economy has grown more than twice as much as Europe. And companies in our continent suffer from a considerable size deficit; for example, Europe has almost six times fewer startups valued at over $1 billion (249) than the US (1,444) and fewer than China also, which reached 330. An essential ingredient of growth is investment, and there is no investment without credit. Europe has sound and well-regulated financial systems and enough savings to provide the financing we need. The time to deepen our Single Market and create a true Banking and Capital Markets Union is now so we can get credit flowing, grow, and secure prosperity for everyone.

China developed its economy by defying free trade — not embracing it. Plenty of developing countries have liberalised their economies but have remained in subordinate positions. Why did China succeed where other developing countries failed? China succeeded via gradual and controlled liberalisation. It actively used state intervention to defy, rather than conform to, the deeply asymmetric structures of the capitalist world economy. Although China opened up to trade and private capital, it maintained tight controls over the flow of capital in and out of the country. China’s joint venture requirements forced foreign firms to partner with Chinese state-owned or domestic firms as a condition of market access. And China’s strong state ownership in the economy meant that the state could retain control over important industries and resources, as well as direct investment to strategic sectors at below-market rates. None of these strategies — capital controls, mandated technology transfer, state ownership of strategic sectors — are consistent with neoliberal doctrine. They are, in fact, direct violations of it. And they are precisely why China’s integration into the world economy produced industrial upgrading rather than permanent subordination. https://lnkd.in/ebC8gjNv

📗 𝐓𝐡𝐞 𝐍𝐆𝐅𝐒 𝐒𝐡𝐨𝐫𝐭-𝐭𝐞𝐫𝐦 𝐒𝐜𝐞𝐧𝐚𝐫𝐢𝐨𝐬 𝐚𝐫𝐞 𝐡𝐞𝐫𝐞! The group of over 100 central banks and supervisors just published a first-of-its-kind, publicly available tool to analyse the near-term impacts of climate policies and climate change on financial stability and economic resilience. 🖍 𝗛𝗲𝗿𝗲'𝘀 𝘄𝗵𝗮𝘁 𝘆𝗼𝘂 𝘀𝗵𝗼𝘂𝗹𝗱 𝗸𝗻𝗼𝘄: 𝐓𝐡𝐞 #𝐍𝐆𝐅𝐒 𝐬𝐡𝐨𝐫𝐭-𝐭𝐞𝐫𝐦 𝐬𝐜𝐞𝐧𝐚𝐫𝐢𝐨𝐬 𝐚𝐫𝐞 𝐡𝐢𝐠𝐡𝐥𝐲 𝐫𝐞𝐥𝐞𝐯𝐚𝐧𝐭 𝐟𝐨𝐫 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐫𝐢𝐬𝐤 𝐚𝐧𝐚𝐥𝐲𝐬𝐢𝐬 𝐚𝐧𝐝 𝐩𝐨𝐥𝐢𝐜𝐲𝐦𝐚𝐤𝐢𝐧𝐠. The four different scenarios show that: ➡️ regional extreme weather events generate temporary but material GDP losses, with effect on the global economy, and could increase the cost of transition; ➡️ delaying transition efforts increase the economic costs of transitioning and could cause additional financial stress. 𝗟𝗲𝘁'𝘀 𝗹𝗼𝗼𝗸 𝗮𝘁 𝘁𝗵𝗲𝘀𝗲 4 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀: 1. 𝗛𝗶𝗴𝗵𝘄𝗮𝘆 𝘁𝗼 𝗣𝗮𝗿𝗶𝘀: A technology-driven and orderly transition unfolds gradually. (Transition risk in a relatively orderly transition). 2. 𝗦𝘂𝗱𝗱𝗲𝗻 𝗪𝗮𝗸𝗲-𝗨𝗽 𝗖𝗮𝗹𝗹: A world of widespread climate unawareness is challenged by a sudden change in policy preferences. (Transition risk in a more disorderly transition) 3. 𝗗𝗶𝘃𝗲𝗿𝗴𝗶𝗻𝗴 𝗥𝗲𝗮𝗹𝗶𝘁𝗶𝗲s: Advanced economies pursue a net-zero transition in line with Highway to Paris. The rest of the world is hit by a sequence of extreme weather events. (Partial transition with mounting physical risks). 4. 𝗗𝗶𝘀𝗮𝘀𝘁𝗲𝗿𝘀 𝗮𝗻𝗱 𝗣𝗼𝗹𝗶𝗰𝘆 𝗦𝘁𝗮𝗴𝗻𝗮𝘁𝗶𝗼𝗻: A sequence of region-specic extreme weather events result in capital destruction, reduced productivity and production, and cascading economic impacts. (Stalled transition and severe physical risks) 𝗛𝗼𝘄 𝗺𝗶𝗴𝗵𝘁 𝘁𝗵𝗲𝘆 𝗯𝗲 𝘂𝘀𝗲𝗱? These scenarios are 𝐩𝐚𝐫𝐭𝐢𝐜𝐮𝐥𝐚𝐫𝐥𝐲 𝐰𝐞𝐥𝐥-𝐬𝐮𝐢𝐭𝐞𝐝 𝐟𝐨𝐫 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐬𝐭𝐫𝐞𝐬𝐬-𝐭𝐞𝐬𝐭𝐢𝐧𝐠 𝐞𝐱𝐞𝐫𝐜𝐢𝐬𝐞𝐬 and for analysing financial risks that may materialise within a business-planning, policy-relevant timeframe. They also provide users with granular outputs across a wide range of financial variables, sectors and countries. 𝐓𝐡𝐞 𝐬𝐡𝐨𝐫𝐭-𝐭𝐞𝐫𝐦 𝐬𝐜𝐞𝐧𝐚𝐫𝐢𝐨𝐬 𝐚𝐫𝐞 𝐚 𝐦𝐚𝐣𝐨𝐫 𝗮𝗱𝘃𝗮𝗻𝗰𝗲 𝐢𝐧 𝗳𝗶𝗻𝗮𝗻𝗰𝗲'𝘀 𝘁𝗼𝗼𝗹𝗸𝗶𝘁 𝗳𝗼𝗿 𝐮𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝗶𝗻𝗴 𝐜𝐥𝐢𝐦𝐚𝐭𝐞-𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐫𝐢𝐬𝐤𝐬. While climate change is a long-term challenge, sudden events and policy shifts can already have a significant impact within a policy-relevant timeframe. The next five years will be important in mitigating climate change, and the NGFS short-term scenarios can help you navigate through these uncertain times. 💡 Stay tuned as we will have lots more analysis on the new scenarios in the weeks ahead! Access the full dataset here: https://lnkd.in/ePrs6hZV #climate #climaterisk #financialrisk #risk #finance #climatescenarios #climatedata

🔥 Climate risks are no longer abstract—they’re disrupting businesses, communities, and economies right now. The World Economic Forum’s 2024 report, "The Cost of Inaction: A CEO Guide to Navigating Climate Risk", delivers a sobering message: ignoring climate risks isn’t just irresponsible—it’s economically devastating. 🌡️ Key insights from the report: 💥 Climate-related disasters have caused $3.6 trillion in damages since 2000, exposing critical vulnerabilities in supply chains and infrastructure. 📉 Physical risks could put 5-25% of EBITDA at risk for some sectors by 2050 under a 3°C warming trajectory. 💸 Transition risks, like carbon pricing and changing regulations, could impact 50% of EBITDA in energy-intensive industries by 2030. 🌱 Every $1 invested in climate adaptation yields $2-$19 in avoided costs, while green markets are projected to grow from $5 trillion in 2024 to $14 trillion by 2030. 💡 My reflections: 🔄 Resilience isn’t enough anymore. Too often, we focus on simply "weathering the storm" of climate risk. But true leadership is about rebuilding something better—rethinking markets, redesigning business models, and creating solutions that lead entire industries forward. 🌍 Supply chain fragility is the Achilles’ heel of the global economy. A single extreme weather event can cascade across operations, grinding everything to a halt. Climate-resilient supply chains can’t just be about survival—they must be radically adaptive, decentralized, and built to thrive under disruption. 📊 Climate risk is fundamentally redefining the concept of value. Businesses stuck chasing quarterly earnings are missing the bigger picture. In a world of rising costs and irreversible climate impacts, long-term value will belong to those who embed sustainability, resilience, and equity into their strategies. The time for cautious, incremental steps has passed. How are we using this moment to transform the way we work, innovate, and lead? #ClimateAction #Sustainability #Resilience #Leadership #Innovation

𝗘𝘂𝗿𝗼𝗽𝗲’𝘀 𝗹𝗮𝗴𝗴𝗶𝗻𝗴 𝗽𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝘃𝗶𝘁𝘆 𝗮𝗻𝗱 𝗥&𝗗: 𝗠𝘂𝗰𝗵 𝗺𝗼𝗿𝗲 𝗿𝗶𝘀𝗸 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗻𝗲𝗲𝗱𝗲𝗱 ‼️ Last week the International Monetary Fund published a very interesting and comprehensive paper about the need for more venture capital in Europe to tackle our continents challenges. To name a few: ✔️productivity per hour worked is app 30% lower in 🇪🇺compared to the 🇺🇸 ✔️R&D investments are still way below the target of 3% per annum ✔️Within the top 100 tech companies worldwide merely a handful are European Is it all about 💶 I here you say? No it is about keeping up our welfare for future generations. And about a liveable planet. And increasing our innovation and competitiveness are crucial to do so. Which is also the key message of Mr. Draghi’s report I hope. The IMF report takes a deeper dive into the underlying issues: ✔️ VC investments are only 0,4% of GDP. In the US it is 3x as much ✔️Europeans park their savings in bank accounts. And banks are very risk aversie when it comes to financing hightech startups. ✔️Long term savings go primarily via pension funds, who hardly invest in VC in Europe (despite some positive signs recently) ✔️The EU has fewer and smaller VC funds leading to smaller rounds, less opportunities for scale-up financing and limited exit options ✔️ European scale-ups end up listing in the US instead of Europe itself ✔️ National fragmentation within the EU leads to a lot of barriers for scaling What has to be done? ✅ Increase efforts on a real single European market, for example by consolidating stock market exchanges and diminishing cross border red tape ✅ Make it more attractive for pension funds and insurers to step into VC ✅ Enhance the capacity of European Investment Bank (EIB), European Investment Fund (EIF) and national promotional institutes, like Invest-NL ✅ Implement preferential tax treatments for equity investments in startups and VC funds ✅ Encourage more funds-of-funds And I would like to ad to the findings in the report two things: 1️⃣ We need a cultural mind shift, more urgency and embracing true entrepreneurship 2️⃣ We have to step up our game when it comes to tech transfer. Transforming our high quality academic knowledge into economic and societal impact via startups.

Europe has a financial plumbing problem. Nothing illustrates this better than its securitisation markets.  My latest for Financial Times Alphaville on "How to fix Europe Europe's securitisation market" The scale of the challenge is huge: - Data centre securitisation since 2018: $35bn in the US; EU none.  - Solar securitisation: $23bn in the US, whereas the EU saw its first and so far only residential solar securitisation in 2024, raising €230mn (J.P. Morgan). If Europe can’t even finance these so-called strategic assets, what hope is there for midsized businesses or a broader array of assets to fund growth? That’s why the Draghi-Letta-Noyer triptych matter more than most European reports. Reforms will be litmus test of Europe’s determination to recalibrate regulations for growth — and close the widening gap to the US.  So in this column for Robin Wigglesworth I unpick why the markets are blocked, and what financial firms such as Apollo, Blackrock, Pimco, AFME argue needs to be done in the on-going European Union consultation. Simon Potter, formerly the markets head of the Federal Reserve Bank of New York and now vice chair of fixed income at Millenium Capital Management, argued that “too much research before the crisis put too much faith in market efficiency and spent too little time exploring the detailed plumbing of the financial system.”  It’s time to call in the plumbers. Link to the full column in the comments #investing AFME (Association for Financial Markets in Europe) BlackRock Apollo Global Management, Inc. ICMA - International Capital Market Association Meghan Kelleher

𝗪𝗵𝘆 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝘀𝘁𝘀 𝘀𝘆𝘀𝘁𝗲𝗺𝗮𝘁𝗶𝗰𝗮𝗹𝗹𝘆 𝘂𝗻𝗱𝗲𝗿𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸𝘀 A new report (👉https://lnkd.in/eMsCKQuh) exposes a fundamental gap between what climate scientists expect and what economic models predict. 𝗧𝗵𝗲 𝗰𝗼𝗿𝗲 𝗽𝗿𝗼𝗯𝗹𝗲𝗺: 68 climate scientists from 12 countries were surveyed about economic damage estimates. Their insights differ radically from standard models: 🔴 At 3°C warming, experts estimate median GDP damage at ~35%. The Nordhaus DICE model predicts only ~3% 🔴 36% of scientists place the "collapse threshold" 𝘣𝘦𝘭𝘰𝘸 4°C, while many scenarios model up to 4°C and beyond 🔴 250 million people displaced by climate disasters in the past decade, impacts barely visible in GDP figures 𝗪𝗵𝘆 𝘄𝗲 𝗺𝗲𝗮𝘀𝘂𝗿𝗲 𝘄𝗿𝗼𝗻𝗴: We focus on global averages, but people experience 𝘭𝘰𝘤𝘢𝘭 𝘦𝘹𝘵𝘳𝘦𝘮𝘦𝘴: the 2021 Texas storm caused $195 billion damage while barely registering in global temperature statistics. GDP often 𝘳𝘪𝘴𝘦𝘴 after disasters (reconstruction spending) while real wealth declines – the "disaster industrial complex" accounts for 1/3 of US economic activity at 1.4°C warming Models assume smooth damage curves but ignore tipping points, cascades, and system failures 𝗪𝗵𝘆 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿𝘀: This gap determines how pension funds assess risks and how central banks conduct stress tests. The NGFS recently raised damage estimates from 7-14% to 30% GDP loss at 3°C, but climate scientists say even this underestimates. 𝗧𝗵𝗲 𝘂𝗻𝗱𝗲𝗿𝗹𝘆𝗶𝗻𝗴 𝗰𝗮𝘂𝘀𝗲: Research ( 👉 https://lnkd.in/eVsBapbT) shows "disciplinary asymmetries": economists seek optimization within existing systems; natural scientists see limits and tipping points. Where economists use GDP as proxy, scientists see missed impacts on health, ecosystems, and inequality. As a consequence, environmental scientist see degrowth as an option, while economist favour market based solutions 👇 . 𝗪𝗵𝗮𝘁 𝗻𝗼𝘄: The report calls for "recalibration toward precaution, robustness, and transparency": ✓ Report ranges instead of point estimates ✓ Acknowledge where models fail (especially above 2-3°C) ✓ Integrate metrics beyond GDP: mortality, inequality, ecosystem degradation ✓ Model cascades and second-order effects The crucial insight: climate change introduces risks exceeding existing economic frameworks. The response is not waiting for perfect models, but recognizing that avoiding irreversible outcomes is cheaper than pricing them after the fact. For long-term investors: climate risk cannot be fully diversified away. It's a systemic risk requiring fundamentally different strategies. #climaterisk #climateeconomics #systemchange #financialrisk #sustainablefinance

👉 Are we using the wrong tools to assess climate risk? A new expert-led assessment, drawing on the judgment of 60+ climate scientists, says that #climatechange introduces forms of risk that exceed the design assumptions of existing economic and financial frameworks. Here’s what that means in practice ⬇️ 🔹 Climate damages are structural, they reshape economies: where people live, what can be produced, how infrastructure functions, and which regions remain viable. 🔹 Extremes drive real-world risk: what actually destabilises societies and markets are heatwaves, floods, droughts, grid failures, food shocks. It’s the tails of the distribution that matter. 🔹 GDP misses mortality, inequality, displacement, ecosystem loss, and can even rise after disasters due to reconstruction. This creates a dangerous illusion of resilience. 🔹 Repeated shocks erode recovery capacity and propagate across supply chains, finance, migration, and geopolitics. 🔹 Beyond ~2°C, uncertainty widens sharply. Confidence in precise damage estimates falls even as consequences grow. 🔹 Tipping points expose the limits of economic modelling: At higher warming levels, model outputs can appear precise while resting on assumptions that no longer hold. At the same time, many models also underestimate positive tipping points in clean energy and innovation. The goal is to build resilience under deep uncertainty. For treasuries, central banks, regulators, and long-horizon investors, this means recalibrating governance toward: ➡️ precaution ➡️ robustness ➡️ transparency Because avoiding irreversible outcomes is always cheaper than trying to price them after the fact. read the report "Recalibrating Climate Risk" here 👇 https://lnkd.in/dx8wmRZ4 Green Futures Solutions (University of Exeter) Carbon Tracker @aurora trust

The headline that caught my eye this week was “Why the Draghi Report on EU Markets Matters.” Here's my take:   European productivity growth has lagged that in the United States over the past 15 years, and higher energy prices (following Russia's invasion of Ukraine) and complexities involving China as an export market have exacerbated Europe's economic challenges. On my recent trip to Europe, these issues (along with the U.S. election) were top of mind for business leaders. I have long admired Mario Draghi, whose career has spanned government, business, and academia, and who approaches complex issues with rigor and pragmatism. Draghi recently authored a lengthy report on how to boost productivity in Europe. His diagnosis: the EU is falling behind in the digital revolution, missing the AI wave, and struggling with fragmented capital markets that push promising startups toward US venture capital. The proposed solution — €800 billion in public investment, a stronger, centralized securities regulator, and a shift in attitudes on anti-trust policy — makes eminent sense and represents the type of boldness required. But implementing these reforms would require significant treaty changes and convincing member states to cede control of their financial markets to a European authority.   The reality is that while Europe needs this "radical change," the political appetite for such substantial reform is currently limited. But Europe can't escape its critical choice: maintain the status quo, with subdued growth prospects, or overcome political hurdles to forge a more competitive future.