Mark Carney, governor of the Bank of England, has warned that markets need to be prepared for the risks posed by climate change to avoid the fate of Germany’s utility companies.
He said extreme weather, unusable oil and gas reserves and desertification are all very real threats that financial markets do not always take into account. The implication here is that shares in insurers, natural resource companies and banks, which are directly exposed to these risks may not be correctly priced. But there was also a real danger that companies also did not react to government policies that were meant to address climate change.
Mr. Carney pointed out that German energy giants had failed to read government policy on climate change correctly and were caught out by the country’s decision to switch away from fossil fuels and nuclear energy towards renewables. Its two once-mighty companies, E.ON and RWE, both lost value after government policy rendered their business model unviable.