Investors, environmental groups, and academics sent a letter to the Bank of England (which is responsible for keeping England’s economic stability) this week, urging it to assess the risk that carbon intensive investments in the United Kingdom have on citizens and investors alike. Five of the 10 largest companies in the U.K.’s benchmark stock index (the FTSE 100) are high-carbon companies, and the group addressing the letter believes that puts the U.K. at risk financially. The authors of the letter argue that depending on finite, unsustainable resources for investing while the world moves into renewable technology is untenable and poses a threat to everyone affected by investments in those companies.
The letter was signed by the Chief Executive of Aviva Investors London and Global Investment Solutions, the Chairman of the Conservative Environmental Network, the Head of Policy at Climate Change Capital, a Former Secretary of State for the Environment and representatives from the University of Oxford, Greenpeace, UK Sustainable Investment and Finance Association among others. It is addressed to Sir Mervyn King, the Chairman of the Financial Policy Committee which the letter says was formed to “contribute to the Bank’s financial stability objective by identifying, monitoring, and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.”
The letter goes on to state that because of that responsibility, the signers of the letter “urge it 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.” It states that the Bank of England’s valuing of these high carbon companies then influences the wider markets and is replicated at other banks, by personal investors, other indexes and worldwide decisions.
This support of high carbon investments could harm the long term future of individual investors as well as pension programs. “An institutional investor looking to generate good returns over a 20 to 30 year period to successfully cover future pension liabilities, could result in stranded assets and poor returns. Counter intuitively, institutional investors, as well as banks, companies, mutual funds and retail investors, continue to risk exactly that by deploying significant amounts of capital into high carbon sectors, or in companies with significant exposure to them,” the letter explains. The letter urges the Financial Policy Committee to study the possible consequences of remaining positive about high carbon investments and says after studying them should reassess the bank’s position on them. “The depth and breadth of our collective financial exposure to high carbon, extractive and environmentally unsustainable investments could become a major problem as we transition to a low carbon economy,” the authors say. Environmental consequences aren’t the only risks we face while continuing to lean on high carbon companies, the consequences reach into all aspects of modern society, including the economy.
Lead image by Carl Silver