A group of investors and NGOs have recently written to the Bank of England and the European Central Bank about the possible systemic risks associated with investors' heavy exposure to carbon intensive oil and gas and mining companies.

They argue that if we are to avoid breaching the globally agreed two degrees centigrade goal, the world will not be able to burn all of its hydrocarbon reserves, and when the markets realise this inconvenient truth, the 'carbon bubble' will burst, and the value of energy and mining companies will collapse, taking 25 per cent of the value of the London Stock Exchange with it - creating a systemic risk that the Bank of England should be taking seriously. This is an important issue - not least because it has been taken seriously by Lord Stern, a key climate policy economist.

What do the City analysts responsible for valuing oil, gas and mining companies think about this? After all, if the City is fundamentally mispricing these companies, then it is their work that is at fault. The analysts present a convincing case for the defence.

On coal reserves, they point out that mining companies in the UK are highly diversified, with interests in a range of commodities. Coal revenues are only a small part of total revenues for most of the big London-listed miners. If climate policy restricts demand for coal, they will have little trouble switching to other commodities.

Furthermore, these companies' coal mining activities are valued on the basis of expected revenues not on the basis of their reserves (unlike oil, coal reserves are easy to secure). So a rapid decline in coal might hurt a little, but there is unlikely to be a collapse in the valuations of the major mining companies. There are, globally, a small number of mining companies that are primarily concentrated in coal. These would be more seriously affected, but these are much smaller players and their demise would not have a significant impact on stock markets. So no systemic risk here.

Oil and gas companies are not diversified and derive nearly all their earnings from their hydrocarbon reserves, so the bubble argument here looks more promising. However, at the current rate of production, the hydrocarbon reserves of the big listed oil companies will last around only around 10-15 years. These companies' valuations are based mostly on their expected earnings over this time period. If you assume a discount rate of seven per cent per annum revenues 15 years into the future are just not very significant to valuations.

Even the most dewy-eyed climate policy optimist is unlikely to believe that the world will stop consuming oil and gas within the next 15 years. Indeed, the globally agreed two degree centigrade target does not require us to stop burning oil and gas for two or three decades, (though we probably need to stop burning coal rather sooner). If this is right, there would seem to be no fundamental mispricing of oil and gas companies on a 15 year view.

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