Financial sector must ‘adjust’ to climate risk

Bank of England governor Mark Carney has announced the establishment of a new global task force, chaired by former New York City mayor Michael Bloomberg, to identify the exposure of companies worldwide to the risks of climate change.

Mr Carney, who is chairman of the Financial Stability Board (FSB), said there was a need to establish “how quickly, how smoothly or how abruptly will the financial sector adjust” to what he has already described as the potentially “catastrophic impacts of climate change”.

He made the announcement to a press briefing at the COP21 climate summit at Le Bourget, saying the initiative arose from a request by G20 leaders at their meeting in Turkey last month that the FSB should examine the implications of global warming for the financial sector.

Only a third of companies were disclosing their “carbon footprint” or laying out strategies to reduce it over time, and Mr Carney said many more needed to provide this type of information for investors and other stakeholders as well as the wider public, in the interest of transparency.

“This is just to bring the information out, in a neutral way, which will make a huge difference. Once you have the information to make judgments on exposure to climate risks, having that out there will amplify success -- and the markets will move very quickly,” he said.

The task force will consider “the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures in this area” as well as developing a set of recommendations for consistent, comparable, reliable, clear and efficient climate-related disclosures.”

Mr Bloomberg, who was selected to chair it on the basis of his impressive track record as mayor of New York City, said pension funds and insurance companies with trillions of dollars in assets wanted to know how companies were dealing with climate change risks, now and in the future.

“If you can’t measure it, you can’t manage it,” he said. “The marketplace is merciless, and demands that you do things.” Many companies were now using “green power” to reduce their energy bills, and more disclosure in this area “would benefit everybody” and encourage more action.

Mr Bloomberg said New York’s targeting of salmonella in restaurants while he was mayor had reduced the incidence of infection “overnight”, while people around the world had “stopped drinking” full-sugar versions of Coca Cola and Pepsi as a result of a controversial move to ban them in the city.

“It’s critical that industries and investors understand the risks posed by climate change, but currently there is too little transparency about those risks,” he said, adding that he expected more transparency would “accelerate investments in technological innovation and clean energy.

The Task Force on Climate-related Financial Disclosures, which is expected to complete its work by the end of 2016, has been requested to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders”.

The FSB was set up in 2009 to coordinate at the international level the work of national financial authorities and international standard-setting bodies and to promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of stability.