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October 2, 2015

Mark Carney’s climate change concerns align with accountants views

Mark Carney, the governor of the Bank of England, gave a speech this week to an audience of insurers in London warning about the risks climate change involve, if unchecked.

Carney said climate change is the "tragedy of the horizon" and there is no need for "an army of actuaries" to foresee its catastrophic impacts on future generations.

"The horizon for monetary policy extends out to 2-3 years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade.

In other words, once climate change becomes a defining issue for financial stability, it may already be too late," he said.

His speech included also a mention to the so-called stranded assets theory.

Those assets, as defined by the Carbon Tracker Initiative, are energy resources (coal and fossil fuels) no longer able to earn an economic return as a result of the transition to a low-carbon economy.

It’s not the first time Carney highlights the importance of sustainability issues. In a letter to the UK parliament, dated 30 October 2014, he wrote:

"As part of my opening remarks at a World Bank seminar on Integrated Reporting, I made reference to analysis suggesting that the majority of proven coal, oil and gas reserves may be considered "unburnable" if global temperatures are to be limited to 2 degrees Celsius […]

"We will be deepening our inquiry into the topic [stranded assets]. I expect the Financial Policy Committee to also consider this issue as part of its regular horizon scanning work on financial stability risk."

Carney’s speech, however, has stirred debate about whether this topic goes beyond the remit of a central banker’s capacity.

For example Jeremy Warner of The Telegraph entitles an article with the question "Who put Mark Carney in charge of our climate policy?"

And Tony Yates, University of Birmingham professor of economics and former BoE adviser, asked in his blog:

"If urging action on climate change is part of the job, what next? Why not issue a plea to OPEC to make sure the taps are kept turned on to aid monetary and real economy stability in the West?

"Or urge support for a Middle East peace settlement to eliminate the risks of military and migration catastrophe that would also threaten the UK and its financial sector? Or push for multilateral nuclear disarmament to clip the tails of asset price distributions?"

Among those who have welcomed Carney’s word is the Climate Change Reporting Framework (CDSB), a consortium of business and NGOs created as a result of a 2007 World Economic Forum meeting.

The CDSB said it backs Carney’s proposal to set up a task force to address the challenge of providing change-related information that drives financial stability.

However, CDSB managing director Jane Stevensen said: "This is a truly significant call to action, but it is important not to reinvent the wheel and to use the work that has already been done to move forward."

Stevensen was referring to the CDSB’s framework to disclose environmental information. This framework is aimed at connecting that information with financial performance using already established mainstream corporate reporting channels.

Also this week Michael Izza, CEO of the Institute of Chartered Accountants in England and Wales, reiterated calls on accountants to be concerned by climate change. Firstly, he said, because of their role is to serve the public interest.

And secondly: "because there is a huge role for businesses to play in driving this change. It is time for finance professionals to seize the opportunity, take the lead and help build a sustainable world."

ICAEW head of sustainability Richard Spencer added: "We anticipate that a legally-binding deal will be reached in Paris [December’s UN Climate Conference Cop21].

"Although this will not be one that achieves a reduction in emission sufficient to meet the two degree Celsius threshold."

Spencer also said: "We expect to see increased regulation as well as a growing number of more effective cap-and-trade schemes and carbon taxes."

Related storiesSustainability: Framework wars

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