"Companies that actually have fossil fuel assets – they would have direct exposure – but banks as financiers of those companies therefore also potentially have exposure," he said. "We would say it's a plausible issue to be examining for the banks, and so we are certainly doing that." Former Coalition opposition leader John Hewson, who chairs the Asset Owners Disclosure Project, said that carbon didn't rate a single mention in the financial system inquiry by David Murray, who had previously doubted the severity of climate change. "I was fascinated that the Murray Review, which is focused heavily on bank capital and the need to increase bank capital, doesn't focus on the climate risk," Dr Hewson Until recently, views such as Dr Hewson's were on the fringe in the finance community, even though environmental groups have been airing them for years.

But noise is being made everywhere. In December, the Bank of England reportedly launched an inquiry into a potential "carbon bubble" in the world economy. Earlier in the year, former United States secretary to the Treasury and Goldman Sachs chief Hank Paulson likened the growing financial risks created by climate change to the US housing credit bubble that was allowed to inflate until 2008. Domestically, while there has been investor debate about carbon risk, it has focused on large emitters, such as coalminers, manufacturers, or airlines. Now the spotlight is on the big four banks - Commonwealth Bank, Westpac, NAB and ANZ. ANZ and CBA shareholders this year faced resolutions from the Australasian Centre for Corporate Responsibility that would have required banks to disclose their "financed emissions".

Even though these were firmly rejected by shareholders, Mr Gray said it would be wrong to assume this means the issue was being ignored by long-term investors such as super funds. "Irrespective of the ACCR resolution, that's a conversation that we were having anyway from the perspective of saying, 'Well we're a big investor in the banks, we want to understand what the risk of that looks like and how banks are managing any potential risks from this as an investment theme'," Mr Gray said. All of the major banks now disclose more information about their lending to big carbon emitters, which is partly a response to the investor and activist pressure. Company chairmen also told investors they consider risks such as these in detail before extending credit to customers. They say these checks are built into banks' environmental, social and governance policies, which are applied to all of big corporate clients. ANZ chairman David Gonski faced repeated questions on carbon at its AGM in December, and argued the bank carefully considered any extra risks that big carbon emitters would face.

"We will continue to look to balance things, so that we can see that we are assisting the world in its living standards, but also at the same time moving towards renewables in a positive way," Mr Gonski said. Despite assurances such as these, research by Tim Buckley from the Institute for Energy Economics and Financial Analysis - a group pushing for action on climate change by investors - paints a less comforting picture about lenders' response to carbon risks. Mr Buckley, a former head of equity research at Citi and fund manager, said the big four banks may have already funded "stranded assets" that were already feeling financial pain due to their carbon exposure. He described the $3 billion Wiggins Island coal export facility as "potentially one of the first stranded assets in Australia" for banks and the associated coalmining company investors. ANZ arranged the syndicate of local and global banks lending to the project, which has since been hit by a plunge in coal prices. Mr Buckley said this plunge in the coal price was partly the result of carbon risks materialising.

The banks' loans to the Wiggins Island project are protected in this case by take-or-pay contract rules that will in effect mean coalminers guarantee the port's cash flow. Nonetheless, lending behaviour such as this undermines bank claims about carefully considering carbon risks – though Mr Buckley said this was now starting to change quite quickly. He said three years ago if you were to ask senior finance executives if they understood the magnitude of their carbon risk in their loan books, infrastructure funds or equity portfolios, they would admit they had "no idea". Now this is changing, after a collapse in coal company share prices linked to the coal price. "I think they do have an idea today," he said. "Would they have known a year ago? No."

It had changed significantly in the past six months, he said, in part due to pressure from shareholders and signs that countries including the United States, China, Japan and Germany are acting to address their carbon emissions. "Through the board election campaign of Ian Dunlop with BHP, the banks have gone through a bit of a baptism of fire and in the last six months," he said. "They are thinking about the associated financial risks a lot more. It wasn't even on their radar a year ago." Despite these changes, many still remain sceptical that banks are taking carbon risk seriously. Dr Hewson said: "I doubt if they've had serious board consideration of these sort of issues and gone through their portfolio loan by loan… whether they've actually done that sort of work, and if they have, why wouldn't they be prepared to tell the market what sort of risks they're running?" The Asset Owners Disclosure Project, which Dr Hewson chairs, is considering "naming and shaming" how the world's 1000 biggest banks are responding to carbon risk, something it already does for pension funds.

He said the issue was not whether banks should avoiding fossil fuels, but that investors needed to be aware of the risks. Similarly, Mr Buckley prefers to describe the risks in the language of finance, rather than environmentalism or politics. "I actually never talk about climate change, I talk about the financial risk of stranded assets," he said. Whatever happens to the politics of climate change, the issue is now clearly on the table as a financial risk. And as Australian Super's Mr Gray said, it was likely to remain there, especially as big super funds become more active in raising this and other social or environmental issues with boards.