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| Climate change may move onto RBA governor Glenn Stevens' agenda after a speech by his peer at the Bank of England. Louie Douvis |
Central banks are normally too busy tackling issues like monetary policy, the economy and inflation to talk publicly about the long-term problems of global climate change.
But a speech this week by Mark Carney, the Bank of England governor, might signal a change in that style of thinking.
It could also make climate change a key focus for the Reserve Bank of Australia.
Over the past few years the Reserve Bank has been very anxious and very vocal about high house prices and the Australian dollar but climate change hasn't been a topic discussed widely by the bank.
It comes as increasingly there is a call to discuss the economy and climate change together rather than handle them as two separate topics.
Carney raised more than just a few eyebrows when he said this week that companies must be more open about their "climate change footprint" to avoid abrupt changes in asset prices that could destabilise markets.
Financial stability is of course a key concern for all central banks so if climate change is going to have an impact on financial markets then it does matter to them, big time.
In addition to his role as the governor of the BoE, Carney also chairs the Financial Stability Board, which co-ordinates financial regulation for the Group of 20 economies.
The Reserve Bank of Australia is also a member of the FSB and the topic of climate change was discussed at the latest board meeting held on September 25 in London.
Disclosures on carbon intensity sought
The FSB has now agreed to consider recommending to G20 leaders that more should be done to develop consistent, comparable, reliable and clear disclosures by companies on the "carbon intensity" of their assets.
Carney also pointed out that UK insurers potentially could be looking at "huge" exposure to any moves in climate-change policy and laid down the challenge to G20 countries that they need to do more to tackle any risks that would jeopardise financial-stability.
"A wholesale reassessment of prospects, especially if it were to occur suddenly, could potentially destabilise markets, spark a pro-cyclical crystallisation of losses and a persistent tightening of financial conditions," he said.
"The speed at which such repricing occurs is uncertain and could be decisive for financial stability."
Investors only have to look at how financial markets reacted this week to talk that Glencore could be worthless due to its $US50 billion debt pile to understand the importance of financial stability.
The three underlying risks to markets from climate change include physical damage, liabilities arising from compensation and transition risks.
A report released in September by the UK Prudential Regulation Authority identified the same three risks and said that climate change is becoming increasingly relevant to financial regulation.
"The PRA's approach will focus on promoting resilience to climate change and supporting an orderly financial sector transition to a lower carbon economy. The PRA will do this through a combination of international collaboration, research, dialogue and supervision."
Natural disaster insurance payouts rising
The PRA also said there was evidence to suggest that insurance payouts arising from global natural catastrophes are increasing which has an impact on local companies like Suncorp.
"The number of registered weather-related natural hazard loss events has tripled since the 1980s and inflation-adjusted insurance losses from these events have increased from an annual average of around $US10 billion in the 1980s to around $US50 billion over the past decade" the report said.
At around $25 billion Suncorp is the largest buyer of weather reinsurance and yet the Queensland Government is looking to provide some additional cover given the lack of private policies that are available.
Suncorp is one of about 10 insurers that operate in North Queensland, and, on average, they deal with up to five cyclones every summer.
Carney's speech also pointed out that any sudden changes in policy could leave many of the biggest companies in the world out of pocket, if, for example, the fight against climate change meant that some oil and gas reserves would have to stay in the ground and therefore couldn't be mined.
If governments around the world decided to get really serious about restricting carbon emissions, billions of dollars invested in oil and gas would be worthless.
It would also undermine the finances of oil-producing regions.
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