The Bank of England’s governor, Mark Carney, has stepped up pressure on the financial services sector to be more proactive in their policies to combat climate change.
In an article aimed at the international financial community and published by The Guardian, Carney and Villeroy de Galhau, governor of the Banque de France, warn of existential threat to the global financial system from climate change and urge financial regulators, banks and insurers around the world to “raise the bar” if catastrophe is to be averted.
“As financial policymakers and prudential supervisors we cannot ignore the obvious physical risks before our eyes,” they write. “Climate change is a global problem, which requires global solutions, in which the whole financial sector has a central role to play.
“If some companies and industries fail to adjust to this new world, they will fail to exist.”
A coordinated effort
Carney and De Galhau urge other financial regulators around the world to conduct climate change stress tests to identify any risks in the system, while call for more collaboration between nations on the issue.
They stress that a “massive reallocation of capital” is needed to prevent global warming above the 2°C maximum target set by the Paris climate agreement, and that the banking system plays a central role in meeting the standard.
The open letter from the two governors accompanies the launch of a report from the Network for Greening the Financial System (NGFS), an international group of central banks and financial regulators, that offers guidelines for financiers ready to tackle climate change.
It also follows this week’s report from Legal & General Investment Management (LGIM) that it is ready to disinvest in companies with poor records in environmental, social and governance (ESG) issues. Climate change impacts on banks and insurers through the increased incidence and severity of catastrophic weather-related events, such as heatwaves, draughts and floods.
There are also risks for the financial sector as governments accept the need to tackle climate change as banks that have lent to companies reliant on burning fossil fuels run the risk of steep financial losses. . The BoE has warned that as much as US$20 trillion (£15.3 trillion) of assets could be destroyed by climate change if it is not tackled.
L&G steps up pressure on corporate governance standards
Legal & General Investment Management says investors should walk away from companies not actively trying to improve.
Climate change will be key focus for regulators in 2019
Extreme weather events in recent years have highlighted how financial risks associated with climate change can affect businesses
How to make climate change a priority for CFOs and investors?
How can investors and CFOs be persuaded that sustainable investment is urgent and necessary to manage risks of climate change?
Tackling climate change with green bonds
Green bonds – investing in green, climate-friendly technologies – is an important way to tackle climate change, argue two climate experts at the Centre for International Climate Research
Businesses taking lead in climate change response in US and UK
Key lessons in issuing a green bond. Climate change concerns in both corporates and consumers are igniting private-sector clean-energy acceleration