Transition Risks and the Financial Sector

Our discussion thus far on transition risks have alluded to the fact that transition—especially if rapid and disorderly—can have a significant negative effect on financial assets (like the corporate shares of climate policy relevant sectors). The risk in the real side of the economy can thus be transmitted throughout the financial economy, impacting investors both private and public, both retail and institutional. As such, the consequences can have far-reaching effects throughout the whole economy, and likely will not stay limited to the directly impacted sectors.

Mark Carney—former Governor of the Bank of Canada (2008 – 2013) and the Bank of England (2013 – 2020)—has been outspoken on the systemic implications of transition risks. In his 2015 speech to executives from Lloyd’s of London (an insurance market located in London), Carney reviews the risks associated with climate change, with particular attention to transition risks and to climate-related financial disclosures that may help attenuate the worst consequence of transition to a low-carbon economy.

Watch the speech here before continuing.

You can also follow along using the transcript from the speech, available here.