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A New Horizon

Author(s): Mark Carney

Date published: Apr 2019

SUERF Policy Note, Issue No 65
by Mark Carney
Governor, Bank of England

JEL-codes: G14, G17, G21, G22, G23, G28, G32.
Keywords: Financial stability; climate change; climate risk; transition risk; sustainable investment; scenario analysis; stress test.

A New Horizon?

A few years ago, I spoke of the Tragedy of the Horizon – how the catastrophic impacts of climate change will be felt beyond the traditional horizons of most banks, investors and financial policymakers, imposing costs on future generations that the current one has no direct incentives to fix. Once climate change becomes a clear and present danger to financial stability it could already be too late to stabilise the atmosphere at two degrees.

The paradox is that risks will ultimately be minimised if the transition to a low-carbon economy begins early and follows a predictable path. But for markets to anticipate and smooth the transition to a 2-degree world, they need the right information, proper risk management, and coherent, credible public policy frameworks.

Today, catalysed by the COP21 Paris Agreement, and national policies such as the UK Government’s Clean Growth Strategy, some of these elements are coming into place, creating a potential path to break the Tragedy of the Horizon. But the task is large, the window of opportunity is short, and the stakes are existential.

In pursuit of that New Horizon, let me briefly discuss progress and prospects in three critical areas – reporting, risk and return.

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SUERF Policy Note, Issue No 65SUERF Policy Note, Issue No 65

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