In September 2015 the Governor of the Bank of England, Mark Carney, gave his seminal ‘Tragedy of the Horizon’s’ speech, to the insurance market at Lloyd’s of London. In it, he highlighted the severe threats posed by climate change to the financial system and warned the problem risked being ignored because of institutional nearsightedness.
“The classic problem in environmental economics is the ‘tragedy of the commons’… but climate change is a tragedy of the horizon,” Carney said, “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors. It will impose costs on future generations that the current one has little direct incentive to fix.”
The horizon for monetary policy goes out just a couple of years, and financial stability only about a decade. Carney went on to outline the three main ways in which climate change can affect financial stability:
- Physical risks like storms and floods;
- Transition risks associated with the transition to a low carbon economy; and
- Liability risks, legal claims by those suffering losses due to climate change.
Much of the attention since then has been on the first two categories, the physical and transition risks, but attention is being drawn to the third category, the liability risks.
We are a global firm that focuses on five key sectors: insurance, energy, trade and commodities, infrastructure and transport. We understand that climate change posed risks to all of these sectors, and have set up a cross-disciplinary team on climate resilience. Our work has been reinforced by a growing number of international regulations and national laws and a growing body of case law.
Listen to the full podcast to learn more.Click here to download our latest climate change liability risk report