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How climate change is remaking finance

  • 04 February 2020


A shift is afoot in the west's financial markets that represents the most important economic change since the emergence of the new financial instruments in the 1990s that ultimately led to the global financial crisis. It is the embrace of climate change by many of the world's biggest financial players. It is likely to result in a new way of thinking about money, which will change the substructure of developed economies.

The enormity of what is occurring has been sketched out by the governor of the Bank of England, Mark Carney. He referred to 'an estimated $US90 trillion of infrastructure investment expected between 2015 and 2030' in which 'nearly 95 per cent of electricity supply will need to be low carbon, 70 per cent of new cars electric, and the CO2 intensity of the building sector will need to fall by 80 per cent'.

In similar vein Laurence Fink, the chief executive of Black Rock, which has about $US7 trillion of assets under management (making it the world's largest asset manager), recently said he believes we are 'on the edge of a fundamental reshaping of finance' because of a warming planet.

Black Rock is large, but the really big hitters in the financial system are the insurance companies and pension funds, who invest tens of trillions of dollars. Re-insurers such as Hannover Re and Swiss Re have been worrying about the impact of climate change for a long time, but now the insurance companies themselves are weighing in.

Carney referred to an international network of investors that have over $US80 trillion in assets under management: the UN Principles for Responsible Investment, that is 'committed to considering Environmental, Social and Corporate Governance factors in their work'. There are other alliances of insurance companies that represent tens of trillions of dollars.

These are big numbers and they will shape how we set up the monetary system, which in turn determines what kind of society we have. Two first order consequences will be a change in how risk is assessed by insurance companies, and how much investment goes into fossil fuels and how much into new technologies that can reduce carbon emissions.

Resources companies may have significant political clout, but in simple fiscal terms they are outgunned. The biggest are only worth around $US100 billion; these amounts are in the trillions or tens of trillions.


"It should come as a surprise to no-one that there is a venal motive behind