These long and short-term risks are, of course, linked – any overall misalignment with climate goals increases the short-term risks from a disorderly transition, possibly caused by extreme weather events or abrupt shifts in climate policy. A system-wide stress test can help supervisors and climate policymakers judge the adequacy of the current transition and whether further actions could be expected. As the Bank of England considers the timing and design of such a stress test, we are working with colleagues in the Network for Greening the Financial System (NGFS) to develop a small number of highlevel scenarios.16 And in our Climate Financial Risk Forum we will work with banks, insurers and asset managers to ensure these scenarios are rolled out effectively within their organisations. Together with our work on this year’s insurance survey, these initiatives will provide a basis for our future assessments of the system-wide exposure to climate risks. The third and final area is return A new horizon brings new opportunities. The IEA estimates that the low-carbon transition could require $ in energy sector investments every year for decades – twice the rate at present. Under their scenario, in order for carbon to stabilise by 2050, nearly 95% of electricity supply will need to be low carbon, 70% of new cars electric, and the CO2 intensity of the building sector will need to fall by 80%. With an estimated $ trillion of infrastructure investment expected between 2015 and 2030, smart decisions now can make sure that investment is both financially rewarding and environmentally sustainable.

It will expose the likely future cost of doing business, of paying for emissions, and of tighter regulation. It will help smooth price adjustments as opinions change, rather than concentrating in a climate “Minsky moment”. And it will allow feedback between the market and policymaking, making climate policy a bit more like monetary policy, with policymakers learning from markets’ reactions, and markets internalising policymakers’ objectives, strategies and instruments. 30  See: https://www.bnymellon.com/us/en/newsroom/news/press-releases/bny-mellon-debuts-service-to-evaluate-environmental-socialand-governance-factors-in-investment-performance-03-19-2019-newsid-13.jsp See: https://www.ubs.com/global/en/ubs-news/r-news-display-ndp/en-20190121-wef.html 32 See: https://www.ishares.com/us/strategies/sustainable-investing#esg 31  11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  In this way, recent progress in disclosure, risk management and return optimisation is creating a path to a New Horizon. A virtuous circle is becoming possible where companies disclose more information, investors make better informed decisions, and sustainable investment goes mainstream. But the speed with which this market develops will be heavily influenced by the coherence and credibility of climate policies. Finance will complement - and potentially amplify – but never substitute for climate policy action. The policy frameworks with the greatest impact will be: time consistent (not arbitrarily changed); transparent (with clear targets, pricing and costing); and committed (through treaties, nationally determined contributions (NDCs), domestic legislation and consensus). As countries build their track records and their credibility grows, the market will allocate capital to deliver the necessary innovation and growth and pull forward the adjustment to a low carbon future.