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Mark Carney warns against 'too rapid a movement' towards low-carbon economy

Published 22/09/2016

Mark Carney said
Mark Carney said "too rapid a movement" towards climate-friendly reforms could catch markets unprepared

Bank of England Governor Mark Carney has warned that a premature move towards a climate-friendly, low-carbon economy could "materially damage financial stability".

In a speech delivered in Berlin on Thursday, Mr Carney said "too rapid a movement" towards climate-friendly reforms could catch markets unprepared.

"Sudden changes in policy, technology and physical risks could prompt a reassessment of asset values as costs and opportunities become apparent," Mr Carney said.

"The speed at which such re-pricing occurs is uncertain but could be decisive for financial stability."

His comments build on a speech made last year, when he dubbed climate change a "tragedy of the horizon", and stressed that the window of opportunity to act against climate change was "finite and shrinking".

Mr Carney went on to urge policy-makers to make early, predictable moves towards climate-friendly reforms.

"Smooth adjustment is crucial because transition risks are how success could turn into failure," he said.

"The point is that the more we invest with foresight; the less we will regret in hindsight.

"Financial stability risks will be minimised if the transition begins early and follows a predictable path, thereby helping the market anticipate the transition."

Mr Carney delivered the speech as part of the Arthur Burns Memorial Lecture run by the non-profit group Atlantik-Brucke.

As part of the transition towards a low-carbon economy, Mr Carney urged companies to disclose the financial risks that climate change poses to their business models.

Such a move would help investors "internalise the risks and opportunities of climate change".

"An obstacle to a smooth adjustment has been the absence of information to help market participants make a market in climate-related financial risk," Mr Carney said.

Only a third of the top 1,000 US companies currently release comparable information on the financial risks posed by climate change, Mr Carney explained.

"The right information allows sceptics and evangelists alike to back their convictions with their capital," he added.

He also highlighted the "major opportunity" around green finance.

Directing investment towards green technologies, for example, could ensure that a global growth recovery is environmentally sustainable.

Meanwhile, the development of a cross-border "green bond" market could help climate-friendly infrastructure, "with issuers ranging from US regional authorities raising funds domestically to invest in water projects, to Chinese and Indian corporates, issuing in a range of currencies, in major financial centres, including London, to finance renewable energy projects", Mr Carney said.

In the move towards a low-carbon economy, "governments will establish the frameworks, and the private sector will make the investments", he said.

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