Sep 30, 2015 - 10:30am
The Climate Institute welcomes comments by Mark Carney, governor of the Bank of England, warning of the implications of climate change for financial stability, and signalling a way to begin addressing this risk.
In a speech overnight to Lloyd’s of London, Carney warned that climate change could result in “huge” losses for investors. He also announced that the Financial Stability Board - a global G20-affiliated body which he also chairs - is considering establishing a Climate Disclosure Task Force, a collaboration between industry, regulators, analysts and ratings agencies. It would be structured similarly to the global Enhanced Disclosure Task Force, set up in the wake of the financial crisis to develop a consistent method for understanding the increasingly risk profiles of banks.
“These developments show the financial sector is waking up to the risks climate change poses to society,” said Kate Mackenzie, Investment & Governance Manager, The Climate Institute. “There is a clear acknowledgement that financial regulators have an important role to play in warding off the risks of climate change.”
The Climate Institute recently released a paper called “Australia’s Financial System and Climate Risk”, which found that Australia's financial system may be vulnerable to the effects of climate change, which could be exacerbated by our carbon-intensive economy, lack of policy clarity, and reliance on global capital markets. The paper was endorsed by former Treasury secretary Martin Parkinson and former NAB chief executive, Cameron Clyne.
“We know that climate change is already affecting our economy, and that some companies and financial institutions are acknowledging the implications for their own businesses. Yet many others are still forging ahead as though climate change, and the economic transformation needed to deal with it, will have no impact on their plans,” said Mackenzie.
“There’s a risk that poor policy signalling, delayed action, and mis-reading by markets could lead to a messy transition that threatens the stability of our financial system. ”
Climate risk on financial systems has gained the attention of key regulators and authorities this year. The Bank of England has reviewed risks in the insurance sector from climate change in both payouts and portfolio investments; and France has made carbon disclosure compulsory for institutional investors.
Mackenzie said: “The climate negotiations in Paris, where countries will agree on a framework for post-2020 carbon pollution reductions, will add further momentum to efforts to deal with climate risk.”
“Ultimately, climate policy is made by governments, and individual market participants must take their own view of how these risks will unfold. However, financial authorities alone have the ability to ensure that standardised, transparent disclosure of climate risks are in place.”
For more information
Kristina Stefanova | Communications Director, The Climate Institute | 02 8239 6299
* The FSB’s membership are financial authorities from G20 countries. Its Australian members are the Australian Treasury and the Reserve Bank of Australia.