The Bank of England governor, Mark Carney, urges financial institutions to address the dangers of climate change. Particularly he urges insurance companies to help counteract the financial shocks which climate change might trigger.
He holds that investors should stress-test the effects of environmental disasters and prepare their portfolios to minimize their contribution to man-made climate change, as the window of opportunity is “finite and shrinking” says Caney.
Despite the EU pledging to cut carbon emissions by 40 per cent by 2030, and Mr. Carney’s warnings that fossil fuel investors might face losses if tougher action on climate change is required in the future, large fossil fuel companies have a different prediction about the future. Both Royal Dutch Shell and BHP Billiton don’t believe that darker times are ahead for their sector, basing themselves on the rising demand for oil and gas.
While Mr. Carney faced many critics following his speech, it is indeed true that effects of a changed climate could ripple through both the financial system and the real economy in unpredictable ways. As one of the most powerful figures on the British financial scene he should consider everything. London is a key center for managers of global financial risk such as insurers and other financial services. The former are already facing a higher frequency of large and expensive disasters resulting from extreme weather and might face higher liabilities in the future. Mr. Carney’s speech comes as a much needed wake-up call.