Climate risks include the impact of climate change, uncertainty surrounding future climate policy and potential disruptive technologies. 3/6  BIS central bankers' speeches  Expected return and risk are influenced by firms’ response to potential structural changes. That is why many investors require companies to report on climate issues, as has the GPFG. Managing climate risk is part of the systematic work in the area of responsible investment. Financial investors must manage climate risk on a par with other risks. Virtually all economic activities lead to emissions, either directly or from complex production chains. Climate risks are therefore difficult to isolate and quantify, both at firm and sector level. Identifying the winners in the green transition is also a demanding exercise. The financial sector has to adapt to climate risk, but does not have effective tools to contribute to solving the climate problem. Also, it is doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference. The responsibility for measures to combat global warming must rest with the authorities. The solution lies in economic instruments that promote structural change. Structural change generates growth A shift in consumption patterns and production methods towards lower emissions will reduce demand for fossil fuels. This can influence oil and gas activities in Norway. We have always known that oil and gas activities will be phased out sooner or later. Oil and gas are nonrenewable resources. A stricter global climate policy may mean that this will occur sooner than foreseen earlier.
Chart: Important role for Norwegian gas But Norwegian oil and gas production will, most likely, remain profitable for quite some time. The supply of clean energy is still limited. Today, coal accounts for a large share of global energy demand. Demand for natural gas may increase as countries move towards a greener economy. In Germany and Poland, phasing out coal faster than planned is being discussed. Norwegian gas can play an important role in a transition phase. There is still global demand for oil and gas. If we reduce production on the Norwegian shelf earlier than planned, other suppliers are ready to take over. The climate impact of an earlier reduction would therefore be marginal, while the costs to Norway would be substantial. The oil industry has been an economic engine for Norway for close to 50 years. The revenues from this industry have improved the welfare of today’s citizens and the citizens of tomorrow. The spillover effects from the oil sector to the wider Norwegian economy are substantial. Throughout our country there are oil-related jobs to be found. More than 10 percent of all employed persons in Norway are either directly or indirectly working for the oil industry. 3 Innovation and skills development in the industry have also benefitted other sectors. The oil industry has been through a demanding period of personnel cuts, cost savings and rationalisation. The restructuring in the industry that was already underway became even more pressing when oil prices collapsed in 2014.