Amid unprecedented market turmoil, many banks are now rightly focused on shoring up their short-term performance and even, in some cases, ensuring their survival. With so many open questions—How deeply will the global recession bite? How aggressively will regulators react to the crisis? How quickly can balance sheets be rebuilt?—long-term strategy has received little or no attention. And yet, almost unnoticed, one topic has advanced from distant issue to discernible opportunity: the transition to the low-carbon economy.

The global response to the problems of climate change will entail a massive shift of industrial and financial resources. To cut emissions of greenhouse gases (especially carbon dioxide), consumers, companies, industries, and even entire countries will have to abandon current forms of carbon-based consumption and switch to new, less-polluting alternatives. Vast sums of capital will be required to fund emission-reducing projects and infrastructure. New industries will be forged, going far beyond the nascent companies we see today. New financial products and markets will be necessary to manage and transfer the risks and costs of carbon emissions. Increasingly forceful regulatory intervention will drive unprecedented shifts in cash flows and valuations. Investors and regulators will demand better information about the economic impact of climate change....