Financial Trends
Climate Change Risk

Bank of England urged to act on lenders’ climate change risks ... Hedge fund manager Christopher Hohn calls for strict rules and greater disclosure

Burgess COMMENTARY

Peter Burgess

Bank of England urged to act on lenders’ climate change risks Hedge fund manager Christopher Hohn calls for strict rules and greater disclosure

The Bank of England has been urged to introduce strict rules on how banks deal with the risks of climate change by activist investor Christopher Hohn, who warned that failing to act could endanger the long-term stability of Britain’s banking system.

The hedge fund manager, who runs TCI Fund Management, wrote to Mark Carney, BoE governor, on Monday arguing that while UK banks are exposed to a wide range of “serious climate-related risks” through their loan books, the current disclosure regime means there is inadequate information for investors.

He called on Mr Carney “to fix this serious problem” by making it mandatory for banks to compel corporate borrowers to disclose the risks they face from climate change. The letter said this should be done in line with guidance from the Taskforce on Climate-related Financial Disclosures, a voluntary initiative encouraging companies to provide more details about the impact global warming could have on their business.

The BoE declined to comment.

In his letter, Sir Chris praised Mr Carney, who sits on the TCFD, for his role in raising awareness about the risks climate change poses to the global financial system. The governor has repeatedly warned of the damage climate change could wreak on the economy and the risks to financial stability that might result from a sudden revaluation of carbon-intensive assets.

But the investor, who recently built up a stake in 21st Century Fox, added that Mr Carney’s concerns “must now urgently be translated into concrete and mandatory actions in order to credibly manage the systemic challenges posed by climate change”.

“Failing to act risks endangering the long-term stability of the UK banking system. It may also expose banks to litigation for inadequate disclosure under existing law,” wrote Sir Chris, who is also a trustee of the Children’s Investment Fund Foundation, a charity.

He added that because Royal Bank of Scotland was controlled by the government, its board should set an example and independently require this disclosure by its borrowers.

RBS said the bank was “fully supportive” of initiatives such as the TCFD and would soon announce an updated policy on lending to high-carbon sectors to reduce its exposure to climate risks.

The letter is the latest sign that fund managers are becoming increasingly concerned about the risks that climate change poses to their investments. Last week, 60 big investors that oversee almost $10.5tn in assets called on oil and gas companies to be more transparent about their approaches to the environment.

Banks have come under particular pressure from shareholders and environmental groups because of their role in financing fossil fuel projects. Barclays’ annual meeting earlier this month was interrupted by protesters, and several shareholder groups criticised the bank for activities such as funding oil pipelines and investing in fracking businesses. Barclays said at the time that it was carrying out a full review of its climate change policies.

Rival HSBC sought to head off similar criticism at its annual meeting by announcing that it would stop financing coal power stations in most countries. The decision followed similar moves by international peers such as BNP Paribas, ING and BBVA.

Sir Chris, who recently ran a high-profile activist campaign at the London Stock Exchange, said forcing greater disclosure was the “sensible thing to do”.

“You can lead or be a follower. We are saying the UK banking system should be forced to lead,” he said. “Then everyone can understand the risks.”

Natasha Landell-Mills, head of stewardship at Sarasin, the asset manager, said Sir Chris’s call for the Bank of England to drive improved climate risk disclosures “needs to be taken seriously”.

“The build up of systemic, yet unaccounted for, climate risks in our economy has the potential to upset financial stability,” she added.

Copyright The Financial Times Limited 2018. All rights reserved.
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