Draghi Urged to Probe EU Investment in Polluting Industry

European Central Bank President Mario Draghi should investigate Europe’s investments in “unsustainable” and high-pollution industries, more than 30 investors, academics, lawmakers and environmental groups said.

The group sent a letter to Draghi urging him in his role as chair of the European Systemic Risk Board to probe whether investments in carbon emitters pose a “systemic risk” to financial security in the European Union, Climate Change Capital Ltd., a signatory, said today in an e-mailed statement.

“Our collective financial exposure to high-carbon, extractive and environmentally unsustainable investments could become a major problem as we transition to a low-carbon economy,” the letter said. “Imminent policy decisions will have material impacts on the value of all high-carbon investments by placing absolute limits to the use of fossil fuels.”

Banks and funds are stepping up their interest in corporate environmental policy as they gauge what companies to invest in. The Bank of England last month said it will evaluate whether U.K. investments in emitting industries pose a risk to financial stability after receiving a similar letter from Climate Change Capital and other investors.

On Feb. 20, the Carbon Disclosure Project in London wrote to 415 of the world’s biggest carbon-dioxide polluters urging them to cut emissions, lowering the risks from new climate policies. It sent the letter on behalf of 92 banks, asset managers and funds that look after $10 trillion of assets, including Banco Santander SA, Henderson Group Plc and Axa SA.

Signatories to today’s letter echoed former U.S. Vice President Al Gore, who said in a Feb. 15 interview that investors who ignore the cost of emitting carbon risk making a mistake akin to those who invested in subprime mortgages.

Subprime Mortgages

“In Europe we need to prevent the deep and profound harm that could be wrought by an over-exposure to high-carbon assets and a rapid shift in their values,” Ben Caldecott, head of policy at Climate Change Capital and the letter’s author, said in a statement. “Unlike sub-prime mortgages before the financial crisis, this time EU and member-state regulators must act to prevent the build-up of systemic risk in our financial system.”

Representatives from AXA Investment Managers, Aviva Investors and the law firm Eversheds joined academics from the University of Oxford, Columbia University and the London School of Economics in signing today’s letter. Leaders of the environmental groups WWF and Greenpeace also signed.

The European Systemic Risk Board was set up at the end of 2010 to oversee risk in the EU financial system.

“To understand the extent of the potential problem we need to assess European financial exposure to high carbon, extractive and environmentally unsustainable investments,” Caldecott wrote in the letter. “While the exposure of listed companies is beginning to be understood, that of non-listed companies, bank loan books and institutional investor portfolios is significantly less appreciated.”

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