23 March 2016
2015 could be seen as the year in which mainstream investors began to wake up to the concept of carbon risk. Mark Carney was arguably the most influential protagonist in this movement.
As governor of the Bank of England and chair of the Financial Stability Board (FSB), Carney has gravitas. When he speaks, people in the financial community sit up and take notice.
Carney gave a series of headline-grabbing speeches and interviews in recent months, which may have been game changers for the financial community, helping put climate change on the agenda as a 'systemic' financial issue.
In his 'tragedy of the horizon' speech at Lloyd's of London in September, he warned the insurance sector that it needs to address the long-term risks posed by climate change.
"Climate change is the tragedy of the horizon," he told the audience. "We don't need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no incentive to fix.
"In other words, once climate change becomes a defining issue for financial stability it may already be too late. Such developments have the ability to shift the balance between premiums and claims significantly, and render currently lucrative business non-viable."
He went on to warn about the danger of 'stranded fossil fuel reserves', saying that the exposure of UK investors, including insurers, to these risks is "potentially huge", adding that financing the decarbonisation of our economy is "a major opportunity for insurers as long-term investors".
Mats Andersson, CEO of Swedish pension fund AP4, and winner of the last year's Personality of the Year award for his work driving forward the Portfolio Decarbonisation Coalition, said the speech was among the best he had ever heard.
"I think we will look back at [this speech] as taking sustainability to another arena," he told Environmental Finance. "It is right that we look at this issue as systemic risk. I don't think we can overstate the importance of the stance he has taken."
"History may well demarcate Carney's interventions as key moments supporting the low-carbon transition," Stephanie Pfeifer
As well as talking about the importance of climate change to the financial sector, Carney also took action.
In his role as chairman of the FSB, the international body set up by the G20 in 2009 to monitor risks to the financial system, he announced the formation of the Task Force on Climate-related Financial Disclosures. And, at the Paris climate summit in December, he announced the appointment of Michael Bloomberg as its chair.
The task force has already begun its work, and aims to come up with recommendations by the end of the year as to how companies should report about the risks posed by climate change.
"Carney's call for a climate disclosure task force just eight weeks ahead of the Paris talks, followed by him launching this crucial initiative at COP21, were two brilliant interventions that brought climate change further into the mainstream," says Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, which represents investors with €13 trillion of assets. "History may well demarcate these as key moments supporting the low-carbon transition."
Bruce Duguid, a director in the engagement team at Hermes EOS, which engages with companies on issues such as climate change, agrees.
"Carney's intervention was critical in bringing climate change to the very highest levels of government and demonstrating that a hard-nosed central banker recognises the importance of climate change," he told Environmental Finance. EF
|PERSONALITY OF THE YEAR||Mark Carney, Bank of England and FSB|
|M&A||Nordex and Acciona Wind Power|
|ENVIRONMENTAL BOND||Lightsource Renewables|
|SUSTAINABLE FORESTRY||New Forests|
|ENERGY EFFICIENCY||Renew Financial and Citi|
|CATASTROPHE RISK||PennUnion Re|
|WEATHER RISK||Swiss Re Corporate Solutions|
|CARBON||World Bank's Pilot Auction Facility|