Bank of England’s Carney challenges business over climate change risk

The world will suffer financial crises and falling living standards unless economically strong countries ensure that companies admit their present and future carbon emissions, the Bank of England governor has warned.

Mark Carney reminded members of the insurance market Lloyd’s of London that in 30 years the number of weather-related loss events has tripled and annual inflation-adjusted losses to insurers have jumped fivefold, to $50bn (£33bn,€44bn).

Carney predicted even worse consequences. He feared that climate change could increase insurance claims for death and disease, raising premiums and killing lucrative businesses, and could cause loss victims to claim against insured parties that they consider negligent.

At the same time most oil, gas and coal reserves would become “stranded”, or unburnable without expensive carbon capture technology, and this would hit UK investors.

Carney insisted that companies should therefore disclose the carbon intensity of their assets consistently, reliably and clearly.

He said the Financial Stability Board, which he chairs, was considering recommending such measures to this month’s G20 summit in Turkey, leading to formation of an industry group that would create a voluntary disclosure standard for companies producing or emitting carbon.

The board was established by the G20 as an international watchdog six years ago to monitor financial system risks.

Carney declared: “Companies would disclose not only what they are emitting today, but how they plan their transition to the net-zero world of the future.

“The G20, whose member states account for around 85% of global emissions, has a unique ability to make this possible.”

He said this action could be followed by a deal working towards a low-carbon future when the UN holds its climate change conference opening in Paris on 30 November. The conference objective is a climate agreement binding on all nations.

One of Carney’s most alarming warnings, however, was that “once climate change becomes a defining issue for financial stability it may already be too late”.

James Bevan, chief investment officer at CCLA, the City-based charity fund management group, said: “As investors, we recognise that the investment risks associated with companies with high carbon intensity are now significant, and CCLA will now work to build coalitions of investors driving change through engagement and co-filing.”

Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, a forum for collaboration between pension funds and other investors, commented: “We welcome [Carney’s] focus on more consistent and reliable carbon disclosure that will allow investors to make a more informed assessment of the climate risks in their portfolios.”

Separately, the UK government has been urged to intensify its efforts to build a low-carbon economy by the Aldersgate Group, an alliance of business, political and civil society leaders dedicated to sustainability.

Executive director Nick Molho said: “The upcoming Paris climate change summit won’t result in an agreement that can immediately lock in commitments that will prevent dangerous levels of climate change.

“But the summit will be a success if it commits countries to initial emission cut pledges and provides for a mechanism to increase these pledges in the coming years.”