The Bank of England Governor Mark Carney has held out the prospect of radical regulatory action to cajole financial markets into taking the economic threat of climate change more seriously.
Speaking to the Lloyd’s of London insurance market, Mr Carney said the Financial Stability Board (FSB) of global regulators, which he chairs, is considering recommending that G20 nations develop a regime of “consistent, comparable, reliable and clear disclosure” of the carbon intensity of different financial assets.
This would take the form of a Climate Disclosure Task Force ,which would set a voluntary standard for disclosure by companies that produce or emit carbon.
“Information about the carbon intensity of investments allows investors to assess the risks of companies’ business models and to express their views in the market” said Mr Carney.
“With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions for policymakers, and a smoother transition to a lower-carbon economy.”
The Governor stressed that the scientific evidence that mankind’s activity was driving climate change was now “unequivocal”. He pointed to the potential financial costs of a rapidly warming planet, including physical damage from more intense storms and a surge in claims for compensation from policyholders.
Mr Carney cited estimates from Lloyd’s itself that the 20cm rise in the sea-level around Manhattan since the 1950s had increased the losses resulting from Hurricane Sandy in 2012 by 30 per cent.
Another financial risk related to global warming, which has previously been highlighted by the Governor, is that the United Nations Intergovernmental Panel on Climate Change has estimated that there is a global “carbon budget” if temperature rises this century are to be limited to two degrees above pre-industrial levels – widely seen as the safe limit. That budget equates to up to a third of the world’s proven oil and gas reserves.
If these reserves can never be safely taken out of the ground and sold, it would imply that some of the world’s largest mining and resources companies – including the FTSE 100’s Shell and BP – which own the reserves, are currently substantially overvalued by the market.
The risk is that if this “carbon bubble” were to burst suddenly, it could cause a wider financial crisis.
Earlier this year, G20 finance ministers asked the FSB to consider how the financial sector could take account of the risks to stability presented by climate change.
The United Nations will convene a climate change conference in Paris on 30 November, with a goal of sealing a new binding and universal inter governmental agreement on curbing emissions. “We will need the market to work alongside in order to maximise their impact,” said Mr Carney.
In August President Obama unilaterally unveiled a plan to use tough new federal regulations from the US Environmental Protection Agency to limit carbon pollution from American power plants.Reuse content