Dr Aled Jones, director of the Global Sustainability Institute at Cambridge-based Anglia Ruskin University, is among signatories to a letter to Bank of England Governor, Sir Mervyn King, today warning of “systemic risk” to the UK economy from environmentally unsustainable investments.

Dr Jones, who is guest speaker at Business Weekly’s Awards dinner in March, said research over the past few years had been building to show that changing climate – and also changing climate policy – will increasingly have an impact on investments and valuations and could undermine the long-term growth prospects for the economy.

The Financial Policy Committee, created within the Bank of England to examine systemic risk to the economy, needs to take these concerns on board, Dr Jones told Business Weekly. His Institute has urged a review of high carbon investments.

Co-signatories to the open letter to the Bank include Climate Change Capital, FairPensions, Lord Gummer, Zac Goldsmith MP, UK Sustainable Investment and Finance Association, Carbon Disclosure Project, WWF-UK, Greenpeace UK, The Climate Group, E3G, The Green Alliance, Oxford University’s Smith School of Enterprise and the Environment, Carbon Tracker Initiative and the London School of Economics.

Dr Jones is supporting calls to monitor and reduce the UK financial sector’s reliance on high carbon and other environmentally unsustainable investments.

He urges the Bank of England to investigate how Britain’s exposure to polluting and environmentally damaging investments could endanger the UK financial system and prospects for long term growth.

As technology developments and policy reduce returns in coal, oil, gas, mining and other high-carbon assets, while supporting low carbon ones, long term institutional investors – such as pension funds with 20 to 30 year investment horizons – may find that if they continue to invest in unsustainable areas they are left holding stranded assets with poor returns, the letter to Sir Mervyn says.

The signatories want the Financial Policy Committee to work on these issues given its mandate “to contribute to the Bank’s financial stability objective by identifying, monitoring, and taking action to remove or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system.”

Dr Jones said: “The ‘default’ investments of institutional investors created by the desire to track the short to medium term stock market movements mean that the high carbon exposure of the leading indices is a systemic risk that needs to be explored by the Financial Policy Committee.

“The Global Sustainability Institute at Anglia Ruskin University is investigating the extent to which resource scarcity and environmental loading, such as climate change, can cause economic shocks in the future. This is an increasingly important issue and one that needs to be well understood by the finance sector.”

At present, regulators are not monitoring the concentration of high carbon investments in the financial system and have no view on what level would be too high.

The letter cites that five of the top 10 FTSE 100 companies – which account for 25 per cent of the index’s entire market capitalisation – are almost exclusively high carbon and that similar levels of exposure are likely in other areas of the financial sector. See the letter here.