Former U.K. regulator calls for measured climate change transition

Mark Carney, one of the leading global voices on the risks that climate change poses to the financial system, said transitioning to a low-carbon economy should not be an all-or-nothing proposition.

In a talk Monday hosted by the Brookings Institution, the former Bank of England governor discussed the role that financial institutions can play in fostering the transition, and outlined a strategy for balancing short- and long-term initiatives.

“What we want to avoid is a very binary approach, in which there are green assets and brown assets, and we get rid of all the brown and go to the green,” Carney said. “That’s not a transition. … That won’t get us to where we need to go.”

Mark Carney, governor of the Bank of England, speaks during a panel session on day three of the World Economic Forum in Davos, Switzerland, on Thursday, Jan. 24, 2019.
“We’ve left this issue very late, so the scale of what needs to be done is enormous," Mark Carney, former governor of the Bank of England, said Monday during a talk about climate change and the financial system.

Carney, who is currently the United Nations’ special envoy on climate action and finance, was warning about these risks long before they became a hot topic in U.S. financial regulatory circles.

In 2015, as chairman of the Financial Stability Board, he established the Task Force for Climate-related Financial Disclosures, which encourages companies to disclose their climate-related risks. As governor of the Bank of England from 2013 to 2020, he led early efforts to incorporate climate risk into stress testing.

In the United States, the role that financial regulators should play in combating climate change has become politically charged. As the Federal Reserve has begun to assess climate risk in the financial system, it has drawn criticism from Republican lawmakers who argue that climate is outside the central bank’s purview.

At the same time, banks have come under fire from environmental activists who want them to stop financing fossil fuels altogether.

Carney, who was promoting a new book, expressed support for a more nuanced approach, in which banks continue to work with corporate clients to help them minimize their impact on climate change.

Indeed, many bankers have started thinking more seriously about the various business opportunities that arise from a transition to a low-carbon economy. At an industry conference last week, Bank of America CEO Brian Moynihan said that his company is increasingly working with middle-market clients that have made net-zero commitments.

“What does that really mean? That means there’s an opportunity to finance a series of activity changes over the next 10, 20, 30 years to allow them to get to net-zero,” Moynihan said at the Bernstein Strategic Decisions Conference. “There's a huge business opportunity because it's being driven by consumer and corporate demand.”

Seventy percent of finance officers at companies with at least $1 billion of revenue reported in a recent U.S. Bancorp survey that their focus on environmental, social and governance issues had increased over the past 12 months.

“I don’t think it’s a coincidence that some of the largest companies in sectors and industries facing some of the largest challenges when it comes to sustainability are paying the most attention to it,” said Marcus Martin, head of ESG for U.S. Bancorp’s fixed income and capital markets business.

Carney focused his remarks Monday on steps that policymakers can take in the short term to produce fast results in the fight against climate change. Such efforts can help generate and sustain momentum, he said.

“It does put a premium on measures that have an immediate payback on jobs and economic growth,” Carney said.

Retrofitting homes to make them more energy efficient might be one example. “You do those things early that have tangible benefits, affect a lot of people, create a lot of jobs, and you say this is what it’s about, as opposed to everybody having to eat lentils.”

But Carney also argued that policymakers need to push for tougher regulation that will also spur further investment in infrastructure upgrades and renewable energy. He gave the example of the U.K.’s plan to ban the sale of internal combustion engines by 2030, which lawmakers there hope will spark greater investment in the production of electric vehicles.

Transitioning to a low-carbon economy is also a matter of global competitiveness, Carney said, noting that that “has not been lost on other major economic powers.”

“We’ve left this issue very late, so the scale of what needs to be done is enormous,” he said. “That’s true for virtually every country.”

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