GSI urges review of high carbon investments

Published: 19 January 2012 at 12:23

Anglia Ruskin research institute signs open letter to the Bank of England

The Global Sustainability Institute (GSI), based at Anglia Ruskin University, is supporting calls to monitor and reduce the UK financial sector’s reliance on high carbon and other environmentally unsustainable investments.

In an open letter sent today to the Bank of England, Anglia Ruskin has joined a coalition of over 20 leading experts, investors, NGOs and universities in urging the Bank of England to investigate how Britain’s exposure to polluting and environmentally damaging investments could pose a systemic risk to the UK financial system and prospects for long term growth.

As technology developments and policy reduce returns in coal, oil, gas, mining and other high-carbon assets, while supporting low carbon ones, long term institutional investors – such as pension funds with 20 to 30 year investment horizons – may find that if they continue to invest in unsustainable areas they are left holding stranded assets with poor returns.

The signatories want the recently created Financial Policy Committee at the Bank of England to work on these issues given its mandate “to contribute to the Bank’s financial stability objective by identifying, monitoring, and taking action to remove or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system”.

Dr Aled Jones, Director of the Global Sustainability Institute, said:

“The ‘default’ investments of institutional investors created by the desire to track the short to medium term stock market movements mean that the high carbon exposure of the leading indices is a systemic risk that needs to be explored by the Financial Policy Committee.
“The Global Sustainability Institute at Anglia Ruskin University is investigating the extent to which resource scarcity and environmental loading, such as climate change, can cause economic shocks in the future. This is an increasingly important issue and one that needs to be well understood by the finance sector.”

At present, regulators are not monitoring the concentration of high carbon investments in the financial system and have no view on what level would be too high. The letter cites that five of the top 10 FTSE 100 companies – which account for 25% of the index’s entire market capitalisation – are almost exclusively high carbon and that similar levels of exposure are likely in other areas of the financial sector.

In addition to the Global Sustainability Institute, the letter’s signatories include Climate Change Capital, FairPensions, Lord Gummer, Zac Goldsmith MP, UK Sustainable Investment and Finance Association, Carbon Disclosure Project, WWF-UK, Greenpeace UK, The Climate Group, E3G, The Green Alliance, Oxford University’s Smith School of Enterprise and the Environment, Carbon Tracker Initiative and the London School of Economics.