Banks have an essential role to play in managing the financial risks of climate change, as well as taking advantage of new investment opportunities. Achieving the UN Sustainable Development Goals and the Paris Agreement targets will also require significant financial resources.

The economic risk of climate change is hard to assess, which is why it is taking a long time for a consensus to form on the subject. “The effects of carbon emissions last 50 years, but the impact of economic decisions last 12 months. The probability of different outcomes is uncertain, reinforcing the urgency to understand climate warnings,” Gifford says.

Further, the fundamental problem is the market failure when societal costs of climate change is not taken into account. Referencing Bank of England governor Mark Carney’s comments, Gifford adds that the failure of traditional capitalism, as well as market failure, should encourage the government to make a difference. “How it affects financial risk management depends on the rate of transition from an economic model that relies on resource depletion to a fossil free society.”

Gifford continues to say that the banks that do not take this into consideration are likely to underperform and must integrate climate risk analysis into processes, not leaving it up to the sustainability departments.

“New technology is superior to the old and drives costs down. Investors buy into technologies that have better advantages long-term and we will see this same curve with renewable technologies. However, renewable growth is not fast enough, and we must halt climate change before it’s too late.”

He goes on to suggest that powerful incentives are needed to speed up transition processes as capital that can be mobilised must come from sectors with high emissions, so then instead of excluding oil and gas, the sector can create new companies that instigate this transition faster.

However, there seems to be little or no reactive follow through from political leaders. This may be because of the German economic slowdown that saw stocks falling after the government acted upon climate related decisions in the automotive industry, referred to as ‘dieselgate’ as Gifford explains.

Despite this, the financial community has crossed a credibility line and sustainable products are no longer marginal financial products. “The goal is clear: climate risk must be identified and then it can be measured. We are in the middle of an unstoppable climate revolution, yet we are told we are running out of time. I think we are winning, but we still need to make changes.”