Use markets to tame climate change
The following is from a commentary in the Guardian by Mark Carney, governor of the Bank of England, and Michael Bloomberg, head of a global climate change task force:
From rising sea levels to more severe storms and more intense droughts, climate change will present serious risks to, and create major opportunities for, nearly every industry. Citizens, consumers, businesses, governments, and international organizations are all taking action. And entrepreneurs are developing disruptive technologies that will create and destroy value.
The challenge is that investors currently don’t have the information they need to respond to these developments. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilizing.
Public policy, consumer demand and technological innovation are driving a shift towards a low-carbon economy. Which companies and industries are most, and least, dependent on fossil fuels? And who stands ready to provide resilient and sustainable infrastructure? Which financial institutions are best positioned to gain and which to lose? In every case, which firms have the governance, resources and the strategy to manage, and profit from, these major shifts?
We believe that financial disclosure is essential to a market-based solution to climate change. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.
Ayear ago in Paris,195 countries committed to limit the rise in global average temperatures to less than 2C.
With better disclosure, a market in the transition to that world can be built. That market will expose the likely future cost of doing business, of paying for emissions, and of changing processes to avoid both those charges and tighter regulation. And it will help smooth price adjustments as opinions change, rather than concentrating them in a short, dangerous space of time.