Climate change to hit financial services

Australia’s Financial and Climate Risk, The Climate Institute's new report, pointed to several factors that are putting Australia’s financial system at risk.

These include Australia's carbon-intensive economy, a lack of policy clarity and a reliance on global capital markets, said the report.

The Climate Institute chief executive John Connor said while some companies and financial institutions are waking up to the implications for their own businesses, many others are still forging ahead as though climate change will have no impact on their plans.

“There’s a risk that poor policy signalling, delayed action and misreading by markets could lead to a messy transition that threatens the stability of our financial system. This risk deserves closer examination by our policymakers and financial regulators,” he said.

“The question is whether the entire financial system can adapt in an orderly way to climate change and related shifts in policy, society and technology.”

Some of the changes in the past two years include “unexpected” shifts in many markets, such as falling value of pure-play coal companies’ shares, declining resources demand from China and falling costs of solar panels, according to the analysis.

Nations and mainstream economic institutions and organisations now recognise that the global economy must be zero carbon before the end of this century, Mr Connor said.

“More than 190 countries have committed to keeping warming to less than two degrees. With major economies like the US and China putting forward initial long-term emissions reduction targets and accelerating climate action ahead of the Paris climate talks at the end of this year, the direction of travel is clear,” he said.

According to the report, back in April, the G20 asked the global Financial Stability Board (FSB) to consider “stranded asset risks and the ‘carbon bubble’,” – recognition by the world’s biggest countries, including Australia, that climate change can pose a threat to financial stability.

“The sub-prime bubble which led to the global financial crisis offers insights, but there is no precedent for climate change in financial history which we can draw upon. However, we do know climate impacts are already costing us, and those costs will continue to grow,” Mr Connor said.

“These are complex issues; it will take time and effort to work through them. This is why it’s essential to begin looking at them now.”