Today Lloyd’s underwriters are required to consider climate change explicitly in their business plans and underwriting models. The bigger risks and opportunities are still to come for nearly every industry. Public policy, consumer demand and technological innovation are all driving a shift towards a low carbon economy. A year ago in Paris, 195 countries committed to limit the rise in global average temperatures to less than 2°C, with 117 countries having now ratified that commitment. So citizens, consumers, businesses, governments, and international organisations are all taking action. And entrepreneurs are developing disruptive technologies that will create and destroy value. But which financial institutions are best positioned to gain and which to lose from this transition? Which companies and industries are most, and least, dependent on fossil fuels? Which businesses are most vulnerable to potential damage from rising physical risks? In every case, which firms have the governance, resources and the strategy to manage, and profit from, these major shifts? At present, the challenge is that investors currently don’t have the information they need to answer to these questions. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilising. But with the right information, financial markets can smooth the transition to a 2-degree world. Risks to financial stability will be reduced if the transition to a low carbon economy begins early and follows a predictable path.

This will ensure investors know how much utility companies are investing in low carbon alternatives. And what progress car manufacturers are making towards fuel efficiency. Scenario analysis  The recommendations recognise also that static disclosures of current carbon footprints will not be sufficient to reveal a company’s climate-related financial risks and opportunities. For investors to price financial risks and opportunities correctly, they need to weigh firms’ strategies against plausible public policy developments, technological advances and evolving physical risks and opportunities. In a ground breaking innovation, the Task Force recommends that companies explore and disclose the potential impacts of climate-related risks and opportunities on their businesses, strategies and financial planning under different potential future scenarios. A full exploration of transition risks may require consideration of financial risks and opportunities under several scenarios, which firms may develop directly or using commonly available models. Reflecting the commitments made in Paris, the Task Force recommends that this should include using a 2-degree scenario. And consistent with the concept enshrined in the Paris Agreement of common but differentiated responsibilities, transition scenarios could take account of different national targets for emissions reduction. This makes them particularly useful for companies headquartered in emerging economies. 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  Over time, the Task Force expects to see a greater emphasis on quantitative analyses in scenario-related disclosures, including the underlying assumptions associated with the climate-related scenarios used. Scope extends to asset owners and managers.