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Bank of England Says to Evaluate Fossil-Fuel Investment Risk

The Bank of England will evaluate whether the U.K.’s exposure to investments in greenhouse gas-emitting industries poses a risk to financial stability, Governor Mervyn King said.

Responding to a Jan. 19 letter from Climate Change Capital Ltd. and more than 20 other investors, academics and campaign groups urging a probe, King said that while there is a “question” about whether any danger exists, he’ll try to investigate investments in polluting industries further.

“There is clearly a scope for further evaluation of these issues,” King wrote in his Feb. 1 reply, posted on the Climate Change Capital website and confirmed by the bank. “We will endeavor to include this in the list of topics we regularly discuss with market participants to assess whether or not this is a risk of which they are aware and the extent to which they are taking it into account in their investment decisions.”

Banks, funds and institutional investors may end up with “stranded assets and poor returns” because of investments in industries with high carbon emissions, Climate Change Capital said in the earlier letter to the bank.

The signatories, who included Aviva Investors Chief Executive Officer Paul Abberley noted that five of the 10 biggest companies in the U.K.’s benchmark stock index, the FTSE 100, were “almost exclusively high-carbon.”

The value of U.K. pensions could be at risk because of investments that may lose value as “policy and technology work consistently over time to reduce returns in high carbon areas while supporting low carbon ones,” according to the first letter.

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