Governor Carney commits to monitor financial risk of unburnable carbon. Will other national financial regulators follow suit?
London, 2nd December 2014: The Bank of England has set a new standard for all central banks and financial regulators on climate risks by agreeing to examine, for the first time, the vulnerability that fossil fuel assets could pose to the stability of the financial system in a carbon constrained world. Carbon Tracker welcomes the Bank of England’s announcement as one vital step towards the levels of risk monitoring of fossil fuel assets required to manage the oncoming energy transition in an orderly manner.
With a letter dated 30th October 2014, the Governor has formally informed the Environmental Audit Committee of the UK Parliament of the Bank’s decision to widen and deepen the enquiry into “unburnable carbon” – those fossil fuel assets that will need to remain unexploited if climate change is to be kept to the internationally agreed 2°C level of warming. As part of the enquiry, the Financial Policy Committee will investigate the potential risks fossil fuel assets pose to financial stability. This is the first major acknowledgement from a financial regulator that most of the world’s listed coal, oil and gas reserves could become “stranded assets” and have significant financial consequences.
Mark Campanale, Founder and Executive Director of Carbon Tracker, says: “Poor disclosure practices from fossil fuel companies could be masking financial risks of fossil fuel assets. This is in part due to inadequate signaling from capital market regulators that these issues are important, or indeed material, and are required by investors to effectively manage their exposure to this risk. Now is the time for guidance and direction to assist companies in preparing new risk disclosures that are fit for this purpose.”
Anthony Hobley, CEO of Carbon Tracker affirms: “How can we escape the ‘tragedy of horizons’ we are living in, if markets are unable to look far enough ahead to the compelling but often unheeded risks from climate change – regulators need to step up and intervene”.
Carbon Tracker believes the Bank of England’s enquiry should not remain an isolated case, but invite other international financial regulators – particularly from global financial and fossil fuel centres such as US, Canada, EU and China – to follow suit and conduct similar enquiries into the risks associated with unburnable carbon and stranded assets.
The concept of a “carbon bubble” has achieved increasing recognition since 2013 within the financial ecosystem, since Carbon Tracker released their seminal report “Unburnable Carbon: Wasted Capital and Stranded Assets”. Carbon Tracker following reports on oil and coal capex-risk raised questions about whether investors have all the right information at their disposal when considering the allocation of capital.
On 14th October 2014, Carbon Tracker released a further report on climate risk disclosure which revealed that the majority of fossil fuel companies recognise that climate change can affect their business model, but only 7% provide evidence of adequately integrating this risk into corporate project and capital expenditure assessments.
Mark Carney’s letter on ‘Stranded Assets’ risk to Joan Walley MP, Chair of Environmental Audit Committee, 30th October 2014
Original Environmental Audit Committee enquiry into ‘carbon bubble’ risk, 6th March 2014:
About Carbon Tracker Initiative:
The Carbon Tracker Initiative (CTI) is a non-profit think tank of financial and energy experts with a ground breaking approach to align capital and investment markets with climate risk. Through evidence-based analysis CTI has progressively identified ways to factor in the risks of fossil fuel investments with energy, climate and economic objectives. Their aim is to raise awareness about the risks that oil, coal and gas investments pose to financial stability and reduce it through a reallocation of capital to cleaner energy. They have succeeded in penetrating the mind-set of key decision makers in the financial, political and corporate sectors on a global scale.
Margherita Gagliardi, Communications Officer at Carbon Tracker Initiative, firstname.lastname@example.org, +44 (0) 777 157 7310
Luke Sussams, Senior Researcher at carbon Tracker Initiative, email@example.com, +44 (0) 779 116 1943
 Unburnable Carbon. Wasted Capital and Stranded Assets, CTI & LSE Grantham Research Institute, April 2013, http://www.carbontracker.org/news/lac-climate-finance-day-in-cop20/
 Carbon Supply Cost Curves: Evaluating Financial Risk to Oil Capital Expenditures, CTI & ETA, May 2014, http://www.carbontracker.org/report/carbon-supply-cost-curves-evaluating-financial-risk-to-oil-capital-expenditures/
 Carbon Supply Cost Curves: Evaluating Financial Risk to Coal Capital Expenditures, CTI & ETA, September 2014, http://www.carbontracker.org/report/carbon-supply-cost-curves-evaluating-financial-risk-to-coal-capital-expenditures/
 Recognising Risk, Perpetuating Uncertainty, CTI, October 2014, http://www.carbontracker.org/in-the-media/fossil-fuel-companies-found-paying-lip-service-to-climate-risks/