Fossil fuel assets will no longer be viable if we stick to net-zero pledges, says Mark Carney

'In the absence of an early and smooth transition to a net-zero economy, the risks of a delayed but abrupt transition will rise,' says Bank of England governor

Many fossil fuel assets will not be viable if companies and countries keep their commitments to reach net-zero emissions, Mark Carney has warned.

The Bank of England governor pointed to the precipitous decline of America’s coal industry as a possible sign of things to come for other fossil fuel producers if they do not prepare properly for a low-carbon future.

The combined value of the top four US coal producers has fallen by more than 99 per cent since 2010 as the dirty fuel faces becoming obsolete.

“In the absence of an early and smooth transition to a net-zero economy, the risks of a delayed but abrupt transition will rise,” Mr Carney said in a letter to the Treasury Select Committee.

“This could precipitate a sharp reassessment of asset values and of climate risks, destabilise markets, spark a pro-cyclical crystallisation of losses, leading to persistent tightening of financial conditions: a climate Minsky moment.”

Financial services companies that are not prepared for a transition to a low-carbon world may be penalised by the bank and ordered to hold additional capital, Mr Carney said.

Mr Carney, who has led a movement to make companies disclose the climate risks they face, will leave the bank next week to take up a position as finance advisor to the UN climate change conference, COP26. In December he warned that climate change could render some financial assets worthless.

His latest comments come as momentum builds to tackle climate change among fund managers that invest in environmentally-damaging businesses.

Despite these moves, it remains difficult for ordinary consumers to weigh up the climate impact of their pensions, savings and investments.

MPs on the Treasury committee are seeking ways to make it clear to investors what risks climate change poses to their savings. One option under consideration is a grading system for financial products, similar to the energy efficiency ratings on homes and appliances.

Evidence submitted to the committee by campaign group Share Action shows that over 60 per cent of pension funds publish little or no information on how they are managing climate risks. Then 16 largest auto enrollment funds, which manage millions of people’s pensions, are effectively a “climate lottery” because of huge the variance is to how well their investments are protected against the risk of global warming, Share Action said.

Committee chair, Mel Stride said: “Clarity for consumers on the carbon footprint and climate risk of financial products is severely lacking. Both the bank and the FCA have stressed the need to improve this.

“In the previous parliament, the committee was told that many auto enrolment pension default funds are subject to a ‘climate lottery’. The great variance in how well investments are protected from climate risk could leave savers and pension holders out of pocket.

“More information is needed to help consumers make informed decisions. One option that the committee may explore is an EPC-style ‘carbon footprint’ rating of a financial product.

“Another issue that the committee may examine is whether firms should be required to hold additional capital on assets exposed to climate risk.

“Action is needed to help consumers navigate the market. Labels to clearly signal the sustainability of a product to consumers may be a good start.”