A coalition of over 20 leading experts, investors, NGOs and Universities have urged the Bank of England to investigate how Britain’s exposure to high carbon investments could jeopardise the UK financial system and damage long-term economic growth.
In an open letter to the newly-created Financial Policy Committee, the concerned coalition warns of Britain’s collective financial exposure to high carbon investments. The group believes that as the country moves to a low-carbon economy through technological advancements and policy, returns in coal, oil, gas, mining and other high-carbon assets will inherit greater risk.
James Cameron, a Member of the Prime Minister’s Business Advisory Group, said: “Counter intuitively, investors continue to pour cash into unsustainable high carbon assets without understanding or being able to manage the risks associated with these investments, such as climate change, local pollution, fossil fuel price volatility, political risk and catastrophes such as Deepwater Horizon. This poses significant strategic challenges for the future prosperity of Britain that just can’t be ignored.”
In the letter, the group states that long-term institutional investors – such as pension funds with 20 to 30 year investment periods – may find that if they continue to invest in unsustainable areas they will be left holding “stranded assets with poor returns”.
The influential group further warns that currently, five of the top ten FTSE 100 companies are almost exclusively high carbon and account for 25 percent of the index’s entire market capitalisation on their own.
Ben Caldecott, Head of Policy at Climate Change Capital, said: “We need to prevent the deep and profound harm that could be wrought by an over-exposure to high carbon assets and a rapid shift in their values. Unlike sub-prime mortgages before the financial crisis, this time regulators must act to prevent the build-up of systemic risk in our financial system.”
The letter proposes that to mitigate the risk of high carbon investment the nation needs to understand the dangers of exposure to high carbon investments from listed and non-listed companies, examine how exposure and relative values between high carbon and low carbon investments could change over time and its affect on the financial system; and develop a strategy that could manage the dangers of over-exposure.
The full letter and signatories, which include: Climate Change Capital, FairPensions, Lord Gummer, Zac Goldsmith MP, UK Sustainable Investment and Finance Association, Carbon Disclosure Project, WWF-UK, Greenpeace UK, The Climate Group, E3G, The Green Alliance, Oxford University’s Smith School of Enterprise and the Environment, Carbon Tracker Initiative, the London School of Economics, and Anglia Ruskin University’s Global Sustainability Institute, can be read here.