Skip to main content

Bank of England warns financial sector of climate risk

by Futures Centre, Oct 14
2 minutes read

The Bank of England Governor Mark Carney has warned of the “profound implications” of climate change “for insurers, financial stability and the economy”.

insurance neon cropped

Carney said the global ‘Carbon Budget’ – that is, the level of emissions that must not be exceeded to limit global warming to 2 degrees, implied by IPPC estimates – “amounts to between a fifth and a third of the world’s proven reserves of oil, gas and coal”. This, he said, means that the vast majority of reserves are “literally unusable”, and so could become stranded assets.”[T]he exposure of UK investors, including insurance companies, to these shifts is potentially huge”, he added. This recent statement builds on previous comments Carney has made in support of the “carbon bubble” hypothesis, including at a World Bank seminar in 2014, but is his clearest endorsement of the ‘stranded assets’ hypothesis yet. 

The Governor spoke at an insurance industry event in London on 29 September to coincide with the publication of a report by the Prudential Regulation Authority on the impact of climate change on British insurers. He told insurers that they were, “amongst those with the greatest incentives to understand and tackle climate change”, citing losses for the industry “from an annual average of around $10bn in the 1980s to around $50bn over the past decade”.

Carney described the risks climate change poses as of three different types:

1. Physical risks, related to the damage and insurance claims associated with floods and storms.
2. Liability risks: future claims from those suffering from climate change which may fall on extractors, emitters and those providing liability insurance.
3. Transition risks: those associated with the transition to a low carbon economy due to changes in policy or technology which might lead to the sharp re-assessment of the value of financial assets, specifically where value depends on the production, sale and use of fossil fuels.

His comments come following a growing fossil fuel divestment movement in the US and UK over the last 2 years, led by groups including 350.org and Share Action, and increasing concern from mainstream investors over risks posed both by climate change impacts and holding carbon intensive assets, including shares in coal, oil and gas companies.

Insurers Aviva recently put 40 fossil fuel companies on notice that they would sell their shares unless they demonstrated they were doing more to avoid climate change.

Image credit: Thomas Hawk/Flickr

Details

by Futures Centre Spotted 1926 signals

Have you spotted a signal of change?

Register to receive the latest from the Futures Centre.
Sign up

  • 0
  • 0
  • Share

Related signals

Signal of change

Richard Branson is bringing disaster preparedness to 3.2 million Caribbean households through the Caribbean Climate-Smart Coalition

Carol Brighton on Twitter ClimateWise #SignalofChange: At @OnePlanetParis, @richardbranson announces new Caribbean coalition plan to build #coastalresilience w #cleanenergy & smart infrastructure investment https://t.co/oI79zljf89 via @Futurism

by Futures Centre, Dec 19 2017
1 minute read
  • 0
  • 0

Our use of cookies

We use necessary cookies to make our site work. We'd also like to set optional analytics cookies to help us improve it. We won't set optional cookies unless you enable them. Using this tool will set a cookie on your device to remember your preferences.

For more detailed information about the cookies we use, see our Cookies page.

Necessary cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytics cookies

We'd like to set Google Analytics cookies to help us to improve our website by collecting and reporting information on how you use it. The cookies collect information in a way that does not directly identify anyone. For more information on how these cookies work, please see our 'Cookies page'.

>