High-CO2 investments could be next sub-prime

14th February 2012

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The UK's future economic stability is at risk from organisations investing in activities that are damaging the environment, the Bank of England has been warned.

In an open letter to Sir Mervyn King, the bank’s governor, a group of investors and academics has called for an investigation into the level of the UK’s exposure to high-carbon investments as the country transitions to a low-carbon economy.

The letter argues that as technological advancements and government policies drive a shift away from fossil fuels, pension funds and other long-term investors that continue to invest in companies working in high-carbon sectors, such as oil and gas abstraction, could find themselves saddled with uneconomical assets in 20 or 30 years.

“Counter-intuitively, investors continue to pour cash into unsustainable high-carbon assets without understanding or being able to manage the risks associated with these investments,” says James Cameron, of low-carbon investment firm Climate Change Capital. “This poses significant challenges for the future prosperity of Britain that can’t be ignored.”

Paul Simpson, CEO of the Carbon Disclosure Project, warned: “The current economic woes of Europe present a short-term headache; if we are to avoid a much larger hangover from our high-carbon economy, then regulators, stock exchanges and long-term investors must analyse the fossil fuel reserves on company balance sheets in order to better understand and reduce risk from high-carbon investment.”

Regulators do not monitor the number of high-carbon investments being made in the UK, and the letter urges the Bank of England to investigate the level of risk posed by this exposure. Following the letter, King indicated the bank’s financial policy committee may begin an investigation into the UK's exposure to high-carbon investments.


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