Mark Carney is the UN Special Envoy on Climate Action and Finance, coming from a distinguished career in finance that included serving as Governor of the Bank of England. In a recent interview, he spoke about how private finance is increasingly aligned behind achieving net-zero greenhouse gas emissions, where emissions produced equal those removed from the atmosphere. He underlined that people everywhere should keep up the pressure in calling for climate action. Edited excerpts follow.
You have said that the goal of net zero is the greatest commercial opportunity of our time. Why?
Climate change is an existential threat. We all recognize that, and there’s increasing urgency around it. But the converse is, if you are making investments, coming up with new technologies, changing the way you do business, all in service of reducing and eliminating that threat, you are creating value. And what we have seen increasingly, spurred initially by the Sustainable Development Goals, accelerated by Paris, and then by social movements and governments, is societies putting tremendous value on achieving net zero. Companies, and those who invest in them and lend to them, and who are part of the solution, will be rewarded. Those who are lagging behind and are still part of the problem will be punished.
What’s the most exciting climate-related development right now in private finance?
The dialogue has shifted from viewing climate change as a risk, to seeing the opportunity, and really translating that into a single objective, which is to move our economies to net zero as quickly as possible. That’s a tremendously exciting development because what we have now in private finance is a focus on a clear goal – net zero – and finding the opportunities to advance that and to be rewarded by it.
Private finance is judging which companies are part of the solution, but private finance, too, is increasingly being judged. Banks, pension funds and asset managers have to show where they are in the transition to net zero. And people are voting with their money. That is creating the type of investment that we’re going to need to get to net zero.
Why is mandatory carbon disclosure by large companies so important?
We all know that what gets measured gets managed. Climate change is not yet consistently measured, although the private sector has moved in this direction since Paris. We now need to make measurement and disclosure mandatory. That’s a priority of the UN COP26 climate conference in Glasgow at the end of this year.
How do small companies figure in this?
If I’m running a company committed to net zero, what does that mean? It’s not just disclosing and managing the emissions in producing my product. It’s also the emissions involved in the energy I use, and the emissions all the way through my value chain, in other words, the emissions of my suppliers, many of whom are small businesses, as well as the emissions from people using a product. That company becomes responsible for disclosing all of those, and it has an incentive to manage all of those down. So it has an incentive to work with small businesses or choose those working towards lower emissions.
If multinational companies focus on their emissions all the way across their value chain, many parts of which are based in developing countries, they have an incentive to invest and help reduce emissions there as well. It is quite powerful. That’s how emissions reductions can be pulled through economies and across the world.
How does action by companies fit with the needs of countries and communities?
Companies are recognizing that they are not islands, independent of the social system, political system, economic system or climatic system. They are connected and take responsibility for those connections and help those to whom they are connected to move forward. With COVID-19, a sense of solidarity has grown and added to a sense of purpose for many companies. That’s a very positive development because it can point companies towards making climate and other needed investments.
What should be the ambition of the national climate plans, or NDCs, that countries use to map climate actions?
2021 is the year of net zero in many respects. At COP26, we are looking for a global net zero commitment. One critical aspect is to have policy credibility and clear objectives (defined in concrete plans). For example, in the European Union and United Kingdom, there are moratoria on internal combustion engine cars after 2030. That tells industry what needs to change between now and then.
This is exactly where the financial sector is most powerful. Because what the financial sector will not do is wait until 2030 to adjust. It will start to adjust now. It will give money, investments and loans to businesses with plans to prosper in those environments.
What’s the role of carbon offsets?
They play a complementary role in getting to net zero, which is fundamentally about absolute reduction of emissions. We know we have a limited carbon budget. On some measures we only have 10 years left at current emissions rates before we have blown through 1.5 degrees of warming and moved to more catastrophic levels. So we need to preserve and extend that budget as much as possible. Carbon offsets help do that.
This is a market that is really being driven by corporate ambition and commitment to net zero. Companies need to know that offsets are real, that carbon is actually being reduced, or else they cannot put it in their annual reports and disclosure. The vast majority of offsets will flow to emerging and particularly developing economies for reforestation, for nature-based solutions and for the development of renewable power and other low-carbon sources, potentially on a scale of $100 billion plus a year for parts of the world that need it the most. So it is an incredibly important market, but as with everything with climate we need to put it in perspective. In no way is this a silver bullet that removes responsibility from anyone for reducing absolute emissions.
How do we balance getting to net zero and adaptation?
It’s an absolute imperative to get to net zero. We will be compounding adaptation if we don’t get to net zero. In other words, things will continue to get worse. The adaption consistent with 1.5 degrees unfortunately would not be consistent with 2 or 2.5 degrees or more.
What do we need to do for adaptation?
On financing adaptation in developing countries, what’s happened thus far is not good enough. We need to scale up quite dramatically the ambition within the multilateral development banks and bilateral donors. And we need to work on blended finance, where some public finance leverages private finance, and there is a proper sharing of risks between the private and public sectors. The requirements unfortunately but realistically are huge, given what’s already happening to our climate and even if we manage a transition to net zero consistent with 1.5 degrees.
Why are you committed to acting on climate change?
I like many others have been aware of the issue for a long time. I felt that on the margin I was helping out in recycling and conservation and other aspects. But candidly, I assumed that climate was being taken care of, that “they” were taking care of it. And then at some point I realized I was part of “they”, and it wasn’t being taken care of.
When I became governor of the Bank of England, which oversees the insurance industry, I saw that the number of extreme weather events had tripled and the cost of those events had gone up five times in a quarter century. These things really concentrated my mind on climate. In terms of my role [as Special Envoy on Climate Action and Finance], I think we’re all in a position where if we’re asked to help we do. I’m honoured to help in any way I can.
What is your advice to others who want to become involved in climate action?
We all have a role in this adjustment. One of the most basic roles we have as individuals is asking questions. The bank that has our money, what’s their position on climate change? How well are they managing relative to net zero? If they give an answer you don’t like, you can move your money to an institutions that is part of the solution.
One other thing, I’m not a politician. But I’ve worked around them many times, and when constituents ask questions it is very powerful. It tells politicians what people care about. Don’t assume that your politician cares about this issue as much as you do. But they will the more you and others raise it with them. And now is the time, because climate is becoming a mainstream issue, and a lot of big decisions are being taken.