The Globe and Mail reports in its Friday, May 21, edition that the Bank of Canada is warning prices for debt and equity tied to carbon-intensive industries fail to adequately factor in the risks of climate change, leaving investors exposed to the potential of sudden losses in value.
The Globe's Jeffrey Jones writes that the BOC said Thursday in its annual Financial System Review that such financial instruments are susceptible to the physical effects of climate change, such as more intense storms and floods, as well disruption from the transition to cleaner forms of energy, This "mispricing" -- one of several economic vulnerabilities the bank highlighted in its report -- could delay the massive investments in clean technologies needed for Canada to achieve its carbon emissions reduction targets, it said. Governor Tiff Macklem said: "The potential impact of climate risks is generally underappreciated, and they are not well priced. That means the transition to a low-carbon economy could leave some investors and financial institutions exposed to large losses in the future."
The bank did not raise the spectre of stranded assets, though many analysts have pointed to that prospect among many long-term risks.
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