The global financial system could be left reeling as $20 trillion of assets are wiped out by climate change, if institutions and companies fail to prepare now, the Bank of England has warned.

The shock could be so severe that it could trigger a “climate Minsky moment”, where asset prices suddenly become worthless, derailing global growth, according to Sarah Breeden, head of international banks supervision at Threadneedle Street.

Sudden and severe losses would be incurred by anyone holding so-called “stranded assets”. These assets could come in the form of “unburnable carbon” in a climate crisis, Ms Breeden said.

So sharp could the shock be to asset values, it might trigger “negative feedback loops to growth”. The losses would “represent a material share of global financial assets”, Ms Breeden said.

The rising threat of climate change meant there were “storm clouds on the horizon” and the financial system needed to chart “a new course to safer waters”, she said.

Exposure to assets that suddenly become worthless in the event of severe climate change could be broader than just those holding reserves of fossil fuels, instead covering a range of sectors.

As a result it was not possible to “disinvest our way to a low carbon economy”, Ms Breeden added. Rather, the Bank and others needed to continue to force firms to disclose the nature and extent of their exposure to present and future climate risks.