It has been two years since the Bank of England’s Governor, Mark Carney, cautioned London’s insurance industry and the world’s capital markets concerning the “catastrophic impacts of climate change [that] will be felt beyond the traditional horizons of most actors”.
Since then, Carney’s message has been echoed by a string of financial regulators. Under his chairmanship, the Financial Stability Board established a Task Force on Climate-related Financial Disclosures (hereafter Task Force), which scrutinised the ways in which the adverse impacts from climate change might ripple across sectors to become “systemic.”
The Task Force concluded that a key forward-looking tool is scenario analysis and recommended that companies analyse the potential business impacts from a reference scenario that results in a global average warming of 2°C or lower.
Companies’ scenario analyses are now entering the market and a two-day conference on the subject hosted last week by the Bank of England and the Task Force indicates the significance of issue for the financial community. Here, we explore how the use of 2°C scenario analysis by fossil fuel companies can be made useful for investors and regulators.