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– the Governor of the Bank of England on tackling financial risks related to climate change.
Last September Mark Carney, Governor of the Bank of England, made a key speech on business and climate change. I finally got around to reading it over the Christmas break.
Mark Carney was talking to the insurance industry but his speech has been published far and wide. It’s oft-quoted, both because of the position he holds and because it described so well the paradox of our inaction in response to climate change and what can be done about it.
First he addressed the sceptics, quoting the 2014 IPCC report and referring to recent increases in insurance losses as well as future risks to financial stability. Then he asked the crucial question: ”Why isn’t more being done to address climate change?” His answer: the Tragedy of the Horizon.
Unfortunately there’s a wide gap between the timing of potential catastrophic impacts of climate change and the typical horizons for analysis and planning by businesses, politicians and authorities such as central banks. So ”once climate change becomes a defining issue for financial stability, it may already be too late.”
Mark Carney was speaking ten weeks before COP21 but his key message was to the financial industry rather than to governments. He concluded that the market can transition towards a 2 degree world but only with the right information. So disclosure by companies about their emissions is essential. Reporting of current emissions is a “necessary first step” to be followed by disclosure of emission reduction plans.
In conclusion, to tackle the Tragedy of the Horizon, companies must measure and report their greenhouse gas emissions in a consistent, comparable, reliable and clear way. If businesses take heed of Mark Carney’s warnings and his advice, then reporting of greenhouse gas emissions will soon become a ”license to operate.”
