Carney warns of climate carnage

CLIMATE change is a ‘tragedy on the horizon’ that could trigger a new financial crisis and derail the economy, the Bank of England warned last night.

Governor Mark Carney said insurers face spiralling losses as the number and ferocity of natural disasters such as floods and storms increase.

He warned that British families could see the cost of insurance rise – or have their cover withdrawn, leaving them vulnerable.

‘In the fullness of time, climate change will threaten financial resilience and longer-term prosperity,’ Carney said in a speech in the City of London.

‘While there is still time to act, the window of opportunity is finite and shrinking.’

He warned that the value of savings and pensions could fall if efforts to tackle climate change hit the share prices of oil and gas explorers, miners, energy suppliers and other industrial companies.

‘The exposure of UK investors, including insurance companies, to these shifts is potentially huge,’ the governor said.

Carney conceded that ‘ there is always room for scientific disagreement about climate change’, but added: ‘Shifts in our climate bring potentially profound implications for insurers, financial stability and the economy.’

He said that since the 1980s the number of weather-related events such as storms and floods that caused damage has tripled.

In that time, the cost to insurers has jumped from an average of around £6.5bn to £33bn a year.

Carney told the annual dinner of the Lloyd’s of London insurance market: ‘The challenges posed by climate change pale in significance compared with what might come.

‘The far-sighted among you are anticipating broader global impacts on property, migration and political stability, as well as food and water security.

‘Climate change could prompt increased morbidity and mortality from disease or pandemics.’

Carney warned that the threat posed is over a longer horizon than that planned for by most politicians, regulators and businesses.

‘Once climate change becomes a defining issue for financial stability, it may already be too late,’ he said, outlining three ways in which it threatens financial stability.

First, he pointed to the risk posed by storms and floods that damage property and disrupt trade.

Second, he said those harmed by climate change could seek compensation in the future, hitting firms such as oil firms or polluting industries and their insurers.

Third, he warned that the cost of becoming a lower- carbon or greener economy posed a threat to financial stability because it could alter the value of companies and assets. Carney, who is also head of the Financial Stability Board, the global organisation of central bankers and regulators, said companies should be more open about their ‘climate change footprint’ to avoid abrupt changes in their value that could destabilise the markets.

He said he would raise the issue at the next meeting of G20 world leaders in November.