In a speech described as “milestone,” the governor of the UK’s central bank warned Tuesday that investors face “potentially huge” risks from assets of “literally unburnable” fossil fuels if the world is to keep global warming under the 2 degree Celsius threshold.
Bloomberg describes Bank of England governor Mark Carney as “the most prominent figure yet from the world of finance to set out his concerns on how climate-related issues could destabilize financial markets in the years to come.”
He told investors gathered at Lloyd’s of London, “The challenges currently posed by climate change pale in significance compared with what might come.”
Carney said that climate change can affect investors in three ways: through physical risks like flooding, liability risks that could “hit carbon extractors and emitters,” and risks from the transition “towards a lower-carbon economy.”
He said that “once climate change becomes a defining issue for financial stability, it may already be too late,” adding that “earlier action will mean less costly adjustment.”
“Take, for example, the IPCC’s estimate of a carbon budget that would likely limit global temperature rises to 2 degrees above pre-industrial levels.”
“That budget amounts to between 1/5th and 1/3rd world’s proven reserves of oil, gas and coal,” he said.
“If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’—oil, gas and coal that will be literally unburnable without expensive carbon capture technology, which itself alters fossil fuel economics.”
“The exposure of UK investors, including insurance companies, to these shifts is potentially huge,” he continued.
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