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The importance of compound risk in the nexus of Covid-19, climate change and finance

Journal Article

Published on 7 January 2021

Monasterolo, Irene and Billio, Monica and Billio, Monica and Battiston, Stefano, The Importance of Compound Risk in the Nexus of Covid-19, Climate Change and Finance (June 20, 2020). Available at SSRN:

Current approaches to manage the COVID-19 pandemic have a narrow focus on public health and on the short-term economic and financial repercussions. This prevents us to look at how pandemic risk interplays with sustainable and inclusive development goals in the next decade. To fill this gap, we analyse how risk can compound in the nexus of non-linear interactions among pandemic, climate change and finance. We show that neglecting compound risk can lead to a massive underestimation of losses, which can be amplified by financial complexity, as well as to policies that impose unnecessary trade-offs among the economic recovery, health and climate objectives. To address these challenges, we propose an interdisciplinary research agenda to inform effective policies and improve the resilience of our socio-economic systems.

Topics: Finance