Climate change threatens global financial crises, and long-term declines in wealth, unless world leaders urgently seal a deal to limit it, the head of the Bank of England said on Tuesday (30 September).
“The challenges currently posed by climate change pale in significance compared with what might come,” Mark Carney told business leaders in a speech in London after the publication of a report by the bank.
“The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security.”
Speaking as world leaders scramble to lay the groundwork for a new United Nations agreement to limit climate change at talks in Paris starting in November, Carney warned that “the window of opportunity is finite and shrinking”.
His comments come the day after French President François Hollande warned that if no deal was reached in Paris, “it will be too late for the world”, in an address to the UN General Assembly in New York.
Scientists have emphasised the urgency of preventing temperatures rising more than two degrees Celsius from pre-industrial times, although analysts warn the world is heating far faster.
Several nations and private sector bodies have promised to cut greenhouse gas emissions, blamed for the severe weather and rising temperatures, but there remain deep international divisions over a long-awaited deal.
A Canadian economist who has been the governor of the central bank since 2013, Carney said that scientific evidence indicated “climate change will threaten financial resilience and longer-term prosperity”.
He said the number of weather-related loss events for insurers had tripled since the 1980s, while inflation-adjusted losses for the sector had increased five-fold to $50 billion a year.
The “catastrophic impacts of climate change” — including floods and storms and financial costs of shifting to a low-carbon economy — will only be felt over a longer period than the three to ten year horizon used in the financial industry, he warned.
“In other words, once climate change becomes a defining issue for financial stability, it may already be too late,” Carney said.
The Earth is currently on track for temperatures to rise 3.5 degrees (6.3 Fahrenheit), with a range of uncertainty between 2.1 and 4.6 Celsius, according to Climate Interactive, a Washington-based group used by leading governments.
A 3.5 degree rise would mean “a world we cannot adapt to”, according to the body’s co-director Andrew Jones.
Alice Garton, Lawyer at ClientEarth, said: “The Bank of England’s report should sound warning bells for anyone working in the financial sector. It says climate change is an immediate, material business risk.
“The case for litigation brought against those ignoring climate change risk grows ever stronger. If directors fail to manage the risks and opportunities presented by climate change, they could be found personally liable for losses incurred by the company in the future.
“Investors such as pension fund trustees and their advisors also have legal duties to manage the risks affecting their portfolios. ClientEarth is examining these duties and we may bring legal challenges if we find that funds are failing to meet their obligations.
“Investors across the board cannot afford to treat climate change as a distant possibility. Increased regulation, changing market dynamics and heightened risk to physical assets must shape their investment decisions from today.”
Negotiations on climate change began in 1992, and the UN organises an annual international climate change conference called the Conference of the Parties, or COP.
Paris is hosting the all-important 21st conference in December 2015. The participating states must reach an agreement to replace the Kyoto Protocol, the object of which was to reduce CO2 emissions between 2008 and 2012.
Reaching an agreement, whether legally binding or not, is the priority between now and December.
The Green Climate Fund was created during the climate conference in Durban (South Africa) in 2011. The objective for developed countries was to raise $100 billion a year by 2020.
An initial capitalisation objective has been fixed at 15 billion dollars for the next three years.
This money will be used to help poorer countries to limit their greenhouse gas emissions and adapt to the effects of climate change, but it will only go some way towards covering greenhouse gas reduction targets.
The global cost of cutting emissions to sustainable levels is estimated at between €500 and €1,500 billion per year.
- 30 November: UN Climate Change Conference
Bank of England
- Report: The impact of climate change on the UK insurance sector
- Speech: Speech