The huge reserves of coal, oil and gas held by companies listed in the City of London are "sub-prime" assets posing a systemic risk to economic stability, a high-profile coalition of investors, politicians and scientists has warned Bank of England's governor, Sir Mervyn King.

In an open letter on Thursday, they tell King that the global drive to reduce carbon emissions could mean billions of pounds of fossil fuel reserves will rapidly lose value and cause a "major problem" for institutional investors and pension funds.

At the most recent UN climate change summit in December, 194 of the world's nations agreed to enact legally binding curbs on greenhouse gas emissions within three years to limit global warming to 2C. But meeting this limit would mean just 20% of existing fossil fuel reserves could be burned, according to recent research.

"These high-carbon assets pose significant strategic challenges for the future prosperity of Britain that just can't be ignored," said investment manager James Cameron, who is a member of the prime minister's business advisory group. "Investors continue to pour cash into unsustainable assets without understanding the risks associated with these investments, such as climate change, local pollution, fossil fuel price volatility, political risk and catastrophes such as Deepwater Horizon."

The letter is also signed by the government's former chief scientific adviser Sir David King, Zac Goldsmith MP, former environment minister John Gummer and 17 others. It urges action to investigate the risk of the "carbon bubble".

Mervyn King chairs the Financial Policy Committee (FPC) set up in 2011 to "identify and take action to remove or reduce systemic risks to protect and enhance the resilience of the UK financial system." The letter's authors point out that "five of the top 10 FTSE 100 companies are almost exclusively high-carbon and alone account for 25% of the index's entire market capitalisation" and that this risk will exist in other indices and in bank loan books.

A separate report published on Thursday by the Carbon Tracker Initiative reveals that coal reserves held by 16 London-listed companies will release 45bn tonnes of CO2 when burned, equivalent to 86 years of annual UK emissions, which are the tenth highest in the world. Most of the coal is in other countries such as Australia and South Africa.

The letter states: "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." It demands an urgent investigation of the issue by the FPC.

"We need to prevent the deep and profound harm that could be wrought by an overexposure to high-carbon assets and a rapid shift in their values," said Ben Caldecott, head of policy at investment company Climate Change Capital, who signed the letter along with Aviva Investors. "Unlike sub-prime mortgages before the financial crisis, this time regulators must act to prevent the build-up of systemic risk in our financial system."

Sir David King, now director of the Smith School of Enterprise and the Environment at Oxford University, said: "Sustainable economic growth is achievable. Those industries than can combine efficiencies with growth will be the winners in the low-carbon economy. And given the rise in global oil prices, those that find alternatives to fossil fuels will be well placed." 2011 was the first year in which the average price of Brent crude oil was over $100.

Another signatory, David Nussbaum, chief executive of WWF-UK, noted that other assets held by investors could be damaged by climate change: "It's clear that we cannot burn all the fossil fuels currently listed on the world's financial markets without seriously impacting the value of other listed assets - which would affect the future pensions on which we'll all depend."

Concern over the long-term risk posed by high-carbon assets has also been raised in the US, where the Investor Network on Climate Risk, a group of 100 institutional investors with collective assets of $10 trillion, said last week: "In order to fulfil our fiduciary duty to safeguard the long-term interests of our clients and beneficiaries, we believe that it is essential to take action now that will result in substantial reductions in global greenhouse gas emissions within a timeframe that minimises the risk of serious impact."