Sir, The UK’s Institute and Faculty of Actuaries supports Mark Carney’s call for a climate disclosure task force under the auspices of the G20. Climate change, and the broad range of risks it gives rise to, has been an issue for some time and is now receiving welcome mainstream media and political exposure. Over the past five years, environmental risks — namely the failure to adapt to changing climate, rising greenhouse gas emissions, and similar themes have featured heavily in the top five risks identified in the World Economic Forum’s Annual Global Risks Report.
Climate change will occur over a long time horizon and if we wait for consensus over the path and impacts of climate change to emerge before we act, we risk those extreme scenarios where our options to deal with this threat to the global economy will be few. The transition risk that Mr Carney has identified is real and needs to be addressed. The transition to low carbon economy is a significant change for the financial sector and investors are not currently given the necessary information in a regular and transparent manner in order to factor in these risks into decisions in a meaningful or proactive fashion.
It is compulsory for UK quoted companies to disclose their greenhouse gas emissions, which is a positive step, and some asset owners around the world are beginning to manage the long-term risk of climate change. These institutions, including pension schemes, see climate change as a financial risk with increasing prominence in their asset allocation process.
We encourage this approach and expect more institutions to incorporate similar factors into their investment processes over time. However, as climate risk disclosure does not apply to all large companies in the UK, only publicly listed ones, institutional investors will find it hard to understand and take action in relation to the risks unless the companies in their portfolios do so first and in a standardised way.
More needs to be done on all levels to make sure that the global economy is not caught out when climate risks begin to affect the balance sheets of both large and small institutions and enterprises. We hope this Task Force will go some way to providing investors with the tools they need to manage these risks.
President, Institute and Faculty of Actuaries,
London WC1, UK
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