By the end of 2020, he’d left the Bank but he hadn’t left the subject. In fact, Carney’s clear, calm analysis of the facts became even more chilling in his BBC Reith Lectures. California and Australia had caught fire. Ice loss at the Poles had accelerated. More species had become extinct. And the five years between his two speeches were the warmest on record. Ever.
Yet Carney was not bringing a message of doom, but of hope. For him, the key driver of a survivable future for the human race is the tipping point he sees coming in the financial sector’s focus on the transition to a net zero carbon global economy.
We have a global carbon budget – the amount of carbon that can still be released before our world becomes dangerously volatile and destructive. As Carney says, “net zero (carbon) isn’t a slogan, it’s an imperative of climate physics”. And shifting to net zero is not just urgent and essential, it’s also an enormous opportunity for banks and other financials.
He’s not the only one saying it, either. Blackrock chief Larry Fink’s 2021 letter to CEOs says explicitly for the first time, “Climate transition presents a historic investment opportunity.” Fink’s conversion was reportedly accelerated by seeing how climate change was damaging his favourite fishing lake in Alaska. But as one of the world’s most hard-headed investors this runs a lot deeper, to his fiduciary duty to the firm. As Fink’s letter concludes, “Climate risk is investment risk”.
Eight trillion dollars of Blackrock investment shifting away from the potentially ‘stranded assets’ of fossil fuels and into technologies like hydrogen as a fuel, carbon capture, smart farming and distributed electricity storage will inevitably make a difference. So will high-profile innovators like Bill Gates, whose latest ocean-crossing yacht runs entirely on hydrogen and produces only water as waste. Not everyone is going to get a superyacht in the future, but it’s a way of proving the technology works.
Perhaps more important still is the shift in political and societal will, accelerated by campaigns like Greta Thunberg’s to local groups advocating cycling or reduced food miles. Social movements powered by digital media are now fully capable of changing opinion at massive scale, as we have seen from Brexit to Black Lives Matter. That in turn can create increasing pressure on governments to deliver on the net zero commitments already set by 126 countries.
According to Carney, there are three ways in which banks and other finance organisations can, without exaggeration, save the planet. Reporting, risk, and returns. On reporting, what gets measured gets done; so larger firms need to sign up to a standard called TCFD (chaired by yet another billionaire, Michael Bloomberg) disclosing climate risks. Investors will increasingly demand to know what’s in their pensions and savings.
Climate risks are different to conventional financial risks because nobody’s ever had to deal with them before. They’re sudden and they can happen everywhere at the same time. You can’t diversify away from them. So banks need to understand the climate risks they’re financing and work with clients to manage them down.
And finally, the big one; returns. Markets work on fear and greed; and Carney, Fink, Gates, Bloomberg and many others agree the transition to net zero could be “the biggest commercial opportunity of all time”.
Climate change should not be seen as something too big to do anything about, or something that won’t affect us. It will, unless we change the climate for the better. And we can, by reinforcing the momentum to net zero. There’s a good chance that by fixing the planet, we can improve the lives of all the people on it.
This article first appeared in Chartered Banker magazine.