Mark Carney, UN special envoy on climate action and finance and former governor of the Bank of England, provided the closing keynote for Sibos 2021, addressing how the collective power of the financial services industry can tackle climate change.
Carney says that, with almost $100 trillion worth of assets committed to net-zero, the global financial system is at a tipping point when it comes to climate change, but adds that finance doesn’t operate in isolation, and governments must also pull their weight.
He adds that alongside commitments to decarbonisation and reporting, “we’re changing the plumbing of the financial system” in parallel with commitments made by governments, so that institutions “have the information, they have the tools, and they have some new markets in order to actually move towards net-zero”.
In what is a trillion dollar opportunity for the financial industry, mobilising the capital to build the net-zero economy requires robust climate action plans and the need for basic information from financial institutions, including annual reporting, medium-term targets, five-year plans, climate disclosures and best practices.
“In the last few months, we’ve had the G7 and the G20 support mandatory disclosure of this fundamental information so markets can work, and we will have that mapped into rules, either in law such as in Europe, or through a whole new international body,” Carney says.
As with anything strategic for a company, “and this is fundamentally strategic”, he says it makes sense to have robust board oversight and to tie management compensation to the outcomes and progress on those commitments and targets.
Carney highlights the radical shift that has taken place already over the last 18 months. Before the pandemic, less than a third of global emissions were covered by net-zero objectives.
“Now it’s three quarters and counting, so we’ve had a big shift in countries making those commitments and that’s starting to drop down to policy — so it’s really hitting the economics of things.”
In particular, he says China’s plans to halve emissions by 2030 and to cease funding new coal power plants abroad are “very significant”, adding that in the new green economy, “great powers will be green powers”.
Carney says the world needs $100-150 trillion to move to net-zero, half of which will be spent in Asia over the next three decades.
And companies cannot just sit on the sidelines as new reporting metrics are going to affect valuations quite substantially, Carney adds.
Regarding carbon offsetting, he says: “We’re very pleased with the governance body which was just set up and announced in the last couple of weeks, which has a great mix geographically of market participants and major NGOs.
“So, there’s a good spread of expertise and very senior and very knowledgeable people on that governance body.”
Carney closes on two points. “Firstly, we need countries to really step up to get that target global temperature figure down from 2.1 degrees, where we’re currently headed, to 1.5 degrees.”
Secondly, the financial system needs to complete its transformation, which will mean every decision takes climate change into account.
“That’s what we need for Glasgow COP26 and we have a few weeks left to finish the job.”