BoE to examine risks carbon-fuel companies pose to financial stability.

FT: “The Bank of England has revealed it is to examine formally for the first time the risks fossil fuel companies pose to financial stability.”
“In a shift from the bank’s past statements, Mark Carney, its governor, has written to MPs informing them that his officials have discussed the idea that most of the world’s proven coal, oil and gas reserves may be “unburnable” if global warming is to be kept within safe limits.
“In light of these discussions, we will be deepening and widening our inquiry into the topic,” he said in a letter dated October 30, seen by the Financial Times, to the parliamentary Environmental Audit Committee, which has been investigating the issue.
“I expect the Financial Policy Committee to also consider this issue as part of its regular horizon-scanning work on financial stability risks,” Mr Carney said.
The Financial Policy Committee is responsible for identifying and reducing systemic financial risks.
The move comes as officials from more than 190 countries gather in Lima, Peru, this week to work on a global deal due to be sealed in Paris next year that will limit the greenhouse gas emissions driving climate change.
….Carbon Tracker, a London think-tank, says such an outcome could sharply undermine the value of such companies, causing a knock-on effect for shareholders, including pension funds and insurers.
….Joan Walley, the chairwoman of the Environmental Audit Committee, said Mr Carney’s public commitment that the bank would monitor the financial risks of being overly exposed to fossil fuel investments was timely in view of the climate talks in Lima.
“Policy makers and now central banks are waking up to the fact that much of the world’s oil, coal and gas reserves will have to remain in the ground unless carbon capture and storage technologies can be developed more rapidly,” she said.
“It’s time investors recognised this as well and factored political action on climate change into their decisions on fossil fuel investments.”
The Bank of England has previously told the committee the issue was important but it had not identified any significant risks to financial stability.
In October, however, Mr Carney told a World Bank seminar he was aware of analysis suggesting fossil fuel reserves could become unburnable, and it emerged that the Bank of England was assessing the risk that climate change poses to the solvency of insurers.
Anthony Hobley, Carbon Tracker’s chief executive, said the bank’s latest move could lead to important changes.
“Fossil fuel companies should be disclosing how many carbon emissions are locked up in their reserves,” he said. “At the moment there is no consistency in reporting so it’s difficult for investors to make informed decisions”.”