Once climate change becomes a defining issue for financial stability it may already be too late, Financial Stability Board chairman Mark Carney warned in a recent speech at Lloyds of London.
ANZ's BlueNotes portal reported the talk by Carney, who is also governor of the Bank of England, in an article by managing editor Andrew Cornell. Cornell wrote that it would be prudent to pay attention to what Carney has to say, "not least because implicit in the speech was a recognition of the limits of economics and hence the necessity for everyone - public and private and institutional - to accept what might be called the moral and ethical dimensions of the response.""What then is the role of corporate responsibility and indeed the idea now of corporations having a 'purpose' as well as a profit motive?" Cornell asked. In his speech, Carney considered the direct costs of climate change and the implications for owners of potentially stranded energy assets.Addressing a room of insurance experts, he drew attention to the growing costs of insurable incidents like bigger storms as well as the risk the assets insurers (and others) hold against liabilities - assets like coal investments - might suddenly plunge in value.Carney's point was that the financial system would play a central role in the response to human-induced climate change via capital allocation and risk pricing."The right information allows sceptics and evangelists alike to back their convictions with their capital," he said."That information, around carbon intensity and mitigation strategies will reveal how the valuations of companies that produce and use fossil fuels might change over time."Carney also drew attention to the limits of financial policy. Even where governments accept their responsibility to address climate change, and use their regulators as agents, there were limits, he said."The horizon for monetary policy extends out two to three years," Carney said. "For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle - about a decade."