Letter calls for investigation into high-carbon investment

A prestigious group of politicians, academics, scientists, investors and green campaigners have clubbed together to write an open letter urging the Bank of England to rethink its economic agenda and to focus more on reducing carbon emissions. Alex Blackburne has a look at it.

Several of the country’s leading renewable energy and climate change supporters have issued Sir Mervyn King, the governor of the Bank of England, with an open letter, which it hopes will force a rethink over the central bank’s agenda.

Having created the Financial Policy Committee (FCP) to look at the risks in the finance sector and investments, the Bank of England is being asked by the esteemed ensemble to “investigate how the UK’s exposure to high-carbon investments might pose a systemic risk to our financial system and what the options might be for managing this potential threat to our economic security”.

Signees of the letter include Conservative MP Zac Goldsmith, former secretary of state for the environment, John Gummer, and former chief scientific adviser to the Government, Sir David King.

Dr Aled Jones, director of the Global Sustainability Institute at Anglia Ruskin University, is another of the 20 names attached to the document.

He explained the reason for the letter, and why it was addressed to the Bank of England.

“The Government has long term targets for transitioning the UK economy to a low carbon economy through the Climate Change Act”, he said.

“There is a risk that what’s listed on the stock market currently is incompatible with those end goals.

“[The Bank of England’s Financial Policy Committee has been] set up to look at risks in the finance sector and in investment, and we think this is one of the risks it needs to be looking at because it could potentially be quite large.”

Paul Ekins, professor of energy and environment policy at the University College London’s Energy Institute, also lent his name to the proposal.

He described the Bank of England as “the main guardian of stability of the financial system”, so it was entirely their prerogative to ensure a sustainable investment-led future.

“Current valuations of high-carbon and carbon-exposed companies are inconsistent with the stated aim of the world community to keep global warming below 2 degrees Celsius”, he said.

“If the world community were to act decisively on their stated aim, as they might were there to be a major climate-related disaster, then the value of those companies would fall precipitately.

“This is a material risk which markets currently do not seem to be taking into account.

“The letter asked the Bank of England to investigate it and make recommendations as to a way forward.”

The letter asks the Bank of England to investigate high-carbon investments and make recommendations to help achieve a low carbon economy.

It claims that, “Five of the top ten FTSE 100 companies are almost exclusively high-carbon and alone account for 25% of the index’s entire market capitalisation” – something that is not like to be exclusive to just that indices.

The need for a clearer focus on achieving the country’s long term carbon-reduction goals is bigger than ever – if only to prevent another financial crash – something that is inevitable if we continue investing in high-carbon companies.

“We need to prevent the deep and profound harm that could be wrought by an over-exposure to high-carbon assets and a rapid shift in their values”, said Ben Caldecott, head of policy at environmental investment banking group, Climate Change Capital, who recently wrote an article for the Guardian on the issue.

“Unlike sub-prime mortgages before the financial crisis, this time regulators must act to prevent the build-up of systemic risk in our financial system.”

Ultimately, will the Bank of England take note of the alliance’s letter then?

“We think so”, claimed Dr Jones.

“We referenced an article that Lord Stern also wrote [for the Financial Times, entitled A profound contradiction at the heart of climate change policy, so lots of people are focusing on this and highlighting it as an issue.

“We hope they will listen.”

You can help to ensure that the Bank of England acknowledges the seriousness of the letter’s request by advocating sustainable investment, rather than high-carbon.

To do this, get in touch with your financial adviser. Alternatively, fill in our form. Either way, your money can make a massive difference in the march towards a responsible future.

Photo: KJGarbutt via Flickr