Shadowy figures who monitor inflation and money supply, operating at arm’s-length from the politicians, central bankers are best known for deciding whether interest rates should go up or down. But with their “buck stops here” responsibility for economic oversight, they are also beginning to take responsibility for the long-term risks of climate change. And their autonomy allows them to make tough policy pronouncements that most politicians would rather avoid.

In November, Sweden’s central bank ruffled feathers around the planet when it announced it had sold off its bond holdings from Alberta and two Australian states, Queensland and Western Australia, because their greenhouse-gas emissions are too high.

Previously, Sweden’s Riksbank had invested a hefty 8% of its foreign-exchange reserves in Australian and Canadian government bonds, “as they give a relatively high yield and a good diversification of risk,” said Deputy Governor Martin Floden. But now, in a country that generates more than half of its energy through renewable sources, that mercenary attitude is no longer good enough.

Describing the climate crisis as “one of the greatest challenges of our time,” Floden said, “We can contribute to the climate work to some extent by giving consideration to sustainability aspects when investing. We are now doing this by rejecting issuers who have a large climate footprint.”

Floden noted that greenhouse gas emissions rates often vary between different parts of a country. The fact that GHG intensity is three times higher in oil-producing Alberta than in Ontario or Quebec convinced the Riksbank to sell off its Alberta bond holdings.

Of course, Alberta pushed back against Floden’s announcement. A spokeswoman for Premier Jason Kenney declared that “if the Swedish central bank is really concerned with making a difference on climate change, they need to be investing more in ethical producers such as Alberta which have shown dramatic gains in reducing emissions.”

When Moody’s credit-rating service downgraded Alberta’s credit rating for similar reasons this week, Kenney called the agency “completely factually wrong” for singling out Alberta’s oil and gas as carbon intensive.

But the pressure on carbon-producing regions is likely to grow. The Bank of Canada recently released a research paper that declared climate change poses numerous “physical risks to Canadians and the Canadian economy.” These threats include socio-economic changes such as disruption of household budgets and labour supply, economic transition risks, and stranded assets such as oil and gas fields, coal plants, transportation assets, real estate, and heavy industry.

Basically an economist’s version of climate striker Greta Thunberg’s warning, “Our house is on fire,” the report indicates the bank will be paying increasing attention to understanding these risks and finding ways to mitigate them.

Meanwhile, the world’s most prominent central banker has just joined the climate wars. Former Bank of Canada governor Mark Carney, who has championed low-carbon policies in his recent role as governor of the Bank of England, is taking on a new job this year as the United Nations’ special envoy on climate action and climate finance.

Carney’s mission: push the financial sector to take proper account of the risks posed by climate change. “The disclosures of climate risk must become comprehensive,” he says, “climate-risk management must be transformed, and investing for a net-zero world must go mainstream.”

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When asked about institutional investors’ growing focus on climate change, Premier Kenney brushed it off. “Flavour of the day,” he told the Globe. There are more important things for investors to look at.

If the financial risk from climate change is a flavour of the day, the Premier of Alberta should prepare himself for one very long day.

The threat of climate change to the stability of the world’s financial system is increasingly a top concern for investors around the world. What was once considered a niche issue is now regularly cited by central bankers and CEOs of the world’s biggest companies as a major threat—not in the future, but today.

With national governments failing to move at the speed necessary to address the climate crisis, the financial sector is driving the shift towards a low-carbon economy. Sustainable finance is directing billions of dollars towards cleaner, greener businesses—and those who ignore or deny what’s happening will lose out on new business opportunities.

For a ‘flavour of the day,’ climate risk has made a lot of appearances amongst the most powerful banking and investment institutions around the world. Consider that in the first six months of this year:

● The Bank of Canada declared, for the first time, climate change to be one of six significant vulnerabilities to the stability of Canada’s financial system in its annual Financial System Review.

● The Bank of England announced a series of climate stress tests for insurers.

● 477 investors managing more than US $34 trillion in assets signed an open letter calling on G20 leaders to price carbon, rapidly decarbonize and end support for thermal coal.

● BlackRock, the largest asset manager in the world, released research showing investors are underpricing climate risk in US bonds, commercial real estate and utility investments.

● New York State’s Common Retirement Fund, the third-largest public pension fund in the US, will increase its contribution to a Sustainable Investment-Climate Solutions Program from $10 billion to $20 billion.

These are professional economists and money managers who, when presented with the evidence, are making the calculated decision to shift money out of industries linked to climate change. Are we to believe that Premier Kenney knows something they don’t?

Even leaders in some of the most carbon-intensive industries in the world are speaking out. Shell CEO Ben van Beurden said a ‘net zero’ target on emissions is the only way to go. BP’s head of strategy told Bloomberg News that some of its oil assets “won’t see the light of day” due to the threat of climate change and the demand from investors for lower-emission projects.

In case you think these statements are simply the musings from investors outside of Canada who don’t understand our economy or the importance of the energy sector, think again. Alberta’s very own AIMco, which is responsible for investing the pensions of Albertans and has more than $100 billion in assets, signed an open letter calling for an acceleration of investment into the low-carbon economy and scaling up efforts to meet the Paris Agreement climate targets.

There is an enormous opportunity for Alberta, and by extension Canada, in embracing sustainable finance. The move to create transition bonds, whereby investors can put their money into businesses seeking to reduce emissions in high-intensity industries, stands to be of huge benefit to Canada’s oil and gas sector. Rather than dismissing sustainable finance, Premier Kenney should be championing these types of new financial tools.

In 2019, the market signals around climate risk are undeniable, and the global shift towards low-carbon industries can’t be ignored. Climate risk is a flavour of the day? If that’s the case, Premier Kenney should brace himself for a very long 24 hours. This flavour is not going anywhere.

Kevin Quinlan is a senior advisor with Mantle314, a climate risk management consulting firm.

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