There are now almost 2000 signatories, with over $ trillion in assets under management, to the UN Principles for Responsible Investment (UN PRI), an international network of investors committed to considering ESG factors in their work.21 This swell of support is driven by the expectation that sustainable investment can generate excess returns in three ways. 17  For more information on the Commission’s Sustainable Plan, see: https://ec.europa.eu/info/business-economy-euro/banking-andfinance/sustainable-finance_en 18 See: CBI https://www.climatebonds.net/about and ICMA https://www.icmagroup.org/green-social-and-sustainability-bonds/greenbond-principles-gbp/ 19 Climate Bonds Initiative. (2018). Green bonds: The state of the market 2018. Available: https://www.climatebonds.net/resources/reports/green-bonds-state-market-2018 20 By Indonesia, Belgium, Lithuania, Ireland and Seychelles 21 See: https://www.unpri.org/pri 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  First, companies that score well on ESG metrics could better anticipate future climate-related risks and opportunities. This makes them more strategically resilient and therefore able to anticipate, and adapt to, the risks and opportunities on the horizon, generating true alpha from ESG. Second, strong ESG scores could signal that a firm is more naturally disposed to longer-term strategic thinking and planning. Climate disclosure is increasingly seen not only as necessary in and of itself, but also as informative about the extent to which companies are focused on long-term value creation. And third, strong ESG firms may enjoy valuation premiums consistent with shifting investor preferences.

Insurers have responded by developing their modelling and forecasting capabilities, improving exposure management, and adapting coverage and pricing.8 In the process, insurers have learned that yesterday’s tail risk is closer to today’s central scenario. Sadly with climate, history repeats not as a farce but as tragedy and with growing frequency. For banks, the financial risks from climate change have tended to be beyond their planning horizons. The PRA’s survey of 90% of the UK banking sector, representing over $ of assets, found that these horizons averaged four years – in other words, before risks would be expected to be fully realised and prior to ambitious climate policies taking effect. 9 That notwithstanding, the PRA’s latest survey finds that almost three quarters of banks are starting to treat the risks from climate change like other financial risks – rather than viewing them simply as a corporate social responsibility issue. Banks have begun considering the most immediate physical risks to their business models – from the exposure of mortgage books to flood risk, to the impact of extreme weather events on sovereign risk. And they have started to assess exposures to transition risks in anticipation of climate action. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. 8 Prudential Regulation Authority. (Sept 2015). The impact of climate change on the UK insurance sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurancesector.pdf 9 Prudential Regulation Authority. (Sept 2018). Transition in thinking: The impact of climate change on the UK banking sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-impact-of-climate-change-onthe-uk-banking-sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EEC.