The hard economics of climate change

The Governor of the Bank of England Mark Carney The hard economics of climate change


Julie Hutchison

22nd October 2015 at 8:58am

Governor of Bank of England Mark Carney’s recent speech on climate change got me thinking.

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

Visiting Germany in the early 1990s, I remember seeing specific differences with the UK and being curious as to what lay behind them.

More cyclists were visible in town centres.  Products were marketed as manufactured from recycled paper.  Unbleached cotton bags were used in shops.

Move the clock forward 25 years and the task of minimising environmental damage is a global issue which is on the agenda at the highest level.

The Governor of the Bank of England has been speaking about the impact of climate change and the actions needed to address financial stability.  The transition to a lower carbon-economy can either be bumpy or more smoothly managed, and Mark Carney outlines some key considerations to support this transition.  He draws on examples from the insurance sector to highlight the direct financial costs of climate change already being experienced through insurance claims arising from extreme weather events.

Climate change challenges

As sea levels rise and rainfall increases, Mark Carney comments: “The challenges currently posed by climate change pale in significance compared with what might come. The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security.”

This sets the context for choosing investments in a changing world.  If you’re saving for retirement with a timeframe of 30 or 40 years into the future, it makes sense to be invested in companies which are likely to thrive in that time horizon.

Colleagues at Standard Life Investments have already been analysing some of the risks linked to climate change, for example where reserves of fossil fuels may need to stay in the ground untapped to meet emission targets.  The climate change summit in Paris this December will shape future regulation in this area and the debate on whether to hold or sell certain stocks will continue.

Good Money Week

These themes will also be highlighted this month during Good Money Week, which draws attention to investment choices which have a positive social or environmental outcome.

Mark Carney’s intervention shows there are macro-economic as well as personal reasons to be reviewing the impact of climate change on your life and finances.

Good Money Week raises awareness of sustainable, responsible and ethical finance to help people make good choices when it comes to their financial decisions. Read more blogs and watch our videos here.

This information is based on our understanding of legislation and regulations in October 2015. Legislation and regulations can change.

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