Business

Mark Carney : Green finance 'a major opportunity'

Bank of England Governor Mark Carney Image copyright Reuters

Bank of England Governor Mark Carney has said climate change risks can be reduced in part by increased green financing in emerging economies.

Mr Carney said long-term financing of green projects in emerging markets would promote financial stability.

Speaking at an event in Berlin, he urged Germany to use its G20 presidency in 2017 to make progress.

Mr Carney has previously warned of climate change risks for the finance industry.

At the event on Thursday, Mr Carney said that in theory capital should flow from advanced to emerging economies due to high returns. In practice, however, the opposite has happened - and this has driven down bond yields in advanced economies, he said.

When money has sporadically flowed to emerging economies it has had a destabilising influence, he said.

"In this context, green finance is a major opportunity. By ensuring that capital flows finance long-term projects in countries where growth is most carbon intensive, financial stability can be promoted," he said.

Green bonds

Mr Carney said the issuance of green bonds - for example, to help finance water or renewable power projects aimed at reducing carbon emissions - could double in 2016 from last year's $42bn.

But they still represent only 1% of holdings by global financial institutions, he said.

"The development of this new global asset class is an opportunity to advance a low carbon future while raising global investment and spurring growth," he said.

He elaborated on a conundrum - that by the time there is a clear economic incentive to act against climate change, it will be too late to do anything about it.

A further potential problem he pointed out was that "too rapid a movement towards a low-carbon economy could materially damage financial stability."

As part of the transition towards a low-carbon economy, Mr Carney also urged companies to disclose the financial risks that climate change poses to their business models.

Mr Carney has previously warned of the risks of climate change for the finance industry, including the possibility that the majority of fossil fuel reserves might not be recoverable as governments push to limit global warming.

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