Mark Carney at PIMFA V Fest 1

Mark Carney, ex Governor of the Bank of England and current UN Special Envoy for Climate Change and Finance, came to PIMFA’s V Fest to discuss climate change targets, the measurement of those targets and the role that we in financial services can all play in meeting them.

A lot has been learned during lockdown. He suggests that, this year, the world will use around 6% less energy – equivalent to India’s annual consumption – but he added: “We would need to see that globally compound in order to achieve net zero emissions by 2050. So the scale of the challenge is quite significant. This is a whole economy adjustment, this isn’t just about niche products or renewable solutions or xing out some dark brown industries or fossil fuels.”

He believes that governments need to create policy which is “consistent on the path to net zero carbon emissions” and investigate regulatory options, saying; “As we come out of this period, what regulatory interventions are there going to be to point the way? Will there be regulatory demands on fuel consumption? Will there be retrofit standards or other standards that point the way in which climate policy is going, which leads to innovation, which leads to investment?”

Progress is definitely being made. There have been significant capital inflows to ESG and sustainable funds over the Covid period – up 20% in the first quarter of 2020 – and he sees climate change as the central issue going forward, economic recovery notwithstanding.

One big issue is the management of systemic risk, applying particularly to banks, insurers and regulators, which he divides into two types – Physical and Transitional.

In the case of Physical (wildfires, floods and the like), incidences are up 3-fold and losses up 5-fold, and he feels that this trend will continue.

With Transitional – he cited ‘ the end of the combustion engine’ as a good example of this – the rules will develop as we move forward and anyone investing or lending in the future will need to observe and take account of this, along with the legislative processes which accompany the changes.

Mr. Carney suggests that the financial industry has now “jumped ahead” of government in leading the way to a sustainable future and sees climate change and the approach of corporates to achieving the government’s target of net zero carbon emission as “a new vector of value”. Further, he believes that public sentiment will create an even greater momentum.

He stressed that younger people are particularly focused on sustainability and that good advice on how to invest their money would correspond with these values, saying “You (the financial services sector) are absolutely central to this, you are serving your clients in a way that serves society ultimately.”

He urged young people to put their money into investments focused on sustainability amid the coronavirus pandemic, saying that younger generations were likely to be the ones to experience a shift or “adjustment” toward sustainability, and so should be the ones to benefit from it. “At some point that adjustment is going to happen … as a younger person, who is going to be around for that adjustment and needs to benefit — I would want to be positioned for that,” he said.