Carney warns on climate change threat to asset prices

Mark Carney

Bank of England governor Mark Carney has argued climate change could threaten financial stability by causing price adjustment on a “large number” of assets.

“We have already seen cases where there have been sharp changes in valuations,” Carney told an audience last night in Berlin.

“The combined market capitalisation of the top four US coal producers has fallen by over 99 per cent since the end of 2010, and three have recently filed for bankruptcy.”

The speed at which further re-pricing occurs is “uncertain” and could be “decisive” for financial stability, Carney argues.

Carney urged the upcoming German presidency of the G20 to mainstream green financing at the Deutsche Bundesbank event.

He pointed out that green bond market alone has gained momentum moving from €3bn in 2012 to €42bn last year.

“Financial stability risks will be minimised if the transition begins early and follows a predictable path, thereby helping the market anticipate the transition to a two-degree world,” Carney argues, referencing commitments made at the Paris Agreement.

But Carney argues investors lack access to information on climate-related financial risk in individual companies with only a third of the largest 1,000 US companies producing data that is comparable.

A task force consisting of issuers, investors, creditors, rating agencies, accounting firms and climate risk experts is currently addressing the issue on behalf of the FSB.

Carney argues the transition to a green economy is also an opportunity with the IEA estimating the global economy will require €45trn of investment to support the Paris climate agreement.

China alone is likely to need €500bn a year until 2020 to finance its environmental goals.

Carney adds that green finance was a major opportunity for emerging economies, where volatile capital flows from advanced economies have seen “amplified cycles, distorted asset prices and fed credit imbalances”.

“In this context, green finance is a major opportunity. By ensuring that capital flows finance long-term projects in countries where growth is most carbon intensive, financial stability can be promoted.”