Companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt, the governor of the Bank of England has warned.
Mark Carney also told the Guardian it was possible that the global transition needed to tackle the climate crisis could result in an abrupt financial collapse. He said the longer action to reverse emissions was delayed, the more the risk of collapse would grow.
Carney has led efforts to address the dangers global heating poses to the financial sector, from increasing extreme weather disasters to a potential fall in asset values such as fossil fuel company valuations as government regulations bite. The Guardian revealed last week that just 20 fossil fuel companies have produced coal, oil and gas linked to more than a third of all emissions in the modern era.
The Bank of England has said up to $20tn (£16tn) of assets could be wiped out if the climate emergency is not addressed effectively. But Carney also said great fortunes could be made by those working to end greenhouse gas emissions with a big potential upside for the UK economy in particular.
The Guardian has collaborated with leading scientists and NGOs to expose, with exclusive data, investigations and analysis, the fossil fuel companies that are perpetuating the climate crisis – some of which have accelerated their extraction of coal, oil and gas even as the devastating impact on the planet and humanity was becoming clear.
The investigation has involved more than 20 Guardian journalists working across the world for the past six months.
The project focuses on what the companies have extracted from the ground, and the subsequent emissions they are responsible for, since 1965. The analysis, undertaken by Richard Heede at the Climate Accountability Institute, calculates how much carbon is emitted throughout the supply chain, from extraction to use by consumers. Heede said: "The fact that consumers combust the fuels to carbon dioxide, water, heat and pollutants does not absolve the fossil fuel companies from responsibility for knowingly perpetuating the carbon era and accelerating the climate crisis toward the existential threat it has now become."
One aim of the project is to move the focus of debate from individual responsibilities to power structures – so our reporters also examined the financial and lobbying structures that let fossil fuel firms keep growing, and discovered which elected politicians were voting for change.
Another aim of the project is to press governments and corporations to close the gap between ambitious long-term promises and lacklustre short-term action. The UN says the coming decade is crucial if the world is to avoid the most catastrophic consequences of global heating. Reining in our dependence on fossil fuels and dramatically accelerating the transition to renewable energy has never been more urgent.
In an interview with the Guardian, Carney said disclosure by companies of the risks posed by climate change to their business was key to a smooth transition to a zero-carbon world as it enabled investors to back winners.
“There will be industries, sectors and firms that do very well during this process because they will be part of the solution,” he said. “But there will also be ones that lag behind and they will be punished.”
Carney said in July: “Companies that don’t adapt will go bankrupt without question.”
US coal companies had already lost 90% of their value, he noted, but banks were also at risk. “Just like in any other major structural change, those banks overexposed to the sunset sectors will suffer accordingly,” he told the Guardian.
The central bank governor said transition to net zero carbon emissions would change the value of every asset, raising the risk of shocks to the financial system.
“Some [assets] will go up, many will go down. The question is whether the transition is smooth or is it something that is delayed and then happens very abruptly. That is an open question,” he said. “The longer the adjustment is delayed in the real economy, the greater the risk that there is a sharp adjustment.”
In April, Carney said: “The stakes are undoubtedly high, but the commitment of all actors in the financial system to act will help avoid a climate-driven ‘Minsky moment’ – the term we use to refer to a sudden collapse in asset prices.”
Far from damaging the global economy, climate action bolsters economic growth, according to Carney. “There is a need for [action] to achieve net zero emissions, but actually it comes at a time when there is a need for a big increase in investment globally to accelerate the pace of global growth, to help get global interest rates up, to get us out of this low-growth, low-interest-rate trap we are in.”
Failing to act would have severe consequences, he said. “I don’t normally quote bankers, but James Gorman, who is the CEO of Morgan Stanley, said the other day: ‘If we don’t have a planet, we’re not going to have a very good financial system.’ Ultimately, that is true.”
The UK remained a climate leader, Carney said, and could benefit from action as a climate-smart financial centre and zero-carbon industrial force.
“Certainly the UK financial system is one of the most sophisticated at managing this risk. The UK can extend that lead, for the good of the UK, for the good of the world,” he said. “A number of the industrial solutions draw on the strengths of UK innovation, from the use of artificial intelligence in energy systems through to potentially advanced materials like graphene. There is a big upside for the UK economy.”
On Tuesday, Carney told big corporations they had two years to agree rules for reporting climate risks before global regulators devised their own and made them compulsory.
Reacting to the Guardian’s revelations about fossil fuel companies, Jeremy Corbyn, the leader of the UK Labour party, said: “Labour will delist companies that fail to meet environmental criteria from the [London Stock Exchange], and reform the finance sector to make it part of the solution to climate change instead of lending to companies that are part of the problem.”