Climate change: from crisis to opportunity

Former Bank of England governor Mark Carney has turned his attention to the next great emergency facing our planet: climate change


On a grey, Glaswegian Sunday in mid-November, COP26 negotiations drew to a dramatic close. Hailed as a potential “turning point for humanity” by British Prime Minister Boris Johnson, the UN’s climate change summit brought together world leaders from almost every country on Earth for a series of urgent, timely and closely followed discussions. For two weeks, the world looked on as deals were struck, pledges were signed and new climate change commitments were drawn up. Amid powerful pleas from young climate activists, countries from around the world took decisive action in Glasgow, promising to protect forests, cut methane emissions and shift away from fossil fuels.

But the trailblazing tone of the summit was tempered on its closing day. An eleventh-hour intervention by India and China saw the wording of the final deal – the Glasgow Climate Pact – amended to reflect a commitment to “phase down” coal usage, rather than the original pledge to “phase out” the harmful fossil fuel. COP26 President Alok Sharma was almost overcome with emotion as he explained what had happened to assembled delegates, saying that he was “deeply sorry” for how events had unfolded. According to a tearful Sharma, the last-minute alteration was necessary to keep the pledge on the table, but he admitted that the resulting outcome was a “fragile win” in the fight against the climate crisis.

COP26 President, Alok Sharma
COP26 President, Alok Sharma

Despite this late revision to the COP26 deal, the Glasgow Climate Pact still very much represents a historic moment in the global effort to combat climate change. The agreement marks the very first time that an international climate deal has aimed at reducing coal consumption – for the past 30 years, the word ‘coal’ has been notably absent from any global climate pacts. Elsewhere across the summit, more than 100 world leaders promised to end deforestation by 2030 (see Fig 1), while China and the US announced a surprise pledge to work together to cut greenhouse gas emissions.

On ‘finance day,’ a coalition of 450 banks, pension funds and other financial institutions – who together have over $130trn at their disposal – committed themselves to the Paris Agreement 1.5 degrees Celsius warning limit, in what was a historic unlocking of private capital to fund the transition to green energy.

The climate crisis is certainly looming large on the global horizon – but the world’s most powerful players are now taking tangible action.

Who can you call?
While politicians such as Liberia’s President, George Weah, may have taken centre stage at COP26, the summit showed that global finance has a critical role to play in the fight against climate change. After all, financial institutions control vast amounts of capital, and if they stop lending to environmentally damaging sectors – fossil fuels, coal mining, fracking and forestry, to name a few – then these industries may find that their funding soon dries up. Despite this mounting pressure, however, it appears that our financial giants aren’t quite ready to turn their backs on fossil fuels just yet. In fact, the world’s largest investment banks have poured $3.8trn into fossil fuel companies since the signing of the Paris Agreement in 2015, according to a recent report led by a coalition of NGOs.

Liberia President, George Weah
Liberia President, George Weah

But COP26 may well see the financial world go green. The financial sector’s $130trn net zero pledge is undoubtedly a watershed moment for the sector, representing a decisive pivot towards a more sustainable future. If successful, it could very well be the first step along the road to a net zero financial system.

As eagle-eyed readers may have noticed, there was a familiar name behind this headline-grabbing COP26 deal. Mark Carney, the former Bank of England governor, was responsible for bringing together the $130trn coalition, in what was perhaps a personal career highlight for the climate-focused banker. Consistently vocal on climate change risks during his time with the Bank of England, Carney’s eco-credentials have only grown since his departure in 2020. Now serving as the United Nations’ Special Envoy for Climate Action and Finance, the Canadian native is on a mission: to drag the financial world away from the dirty investments of the past and push it towards the green opportunities of the future. It’s a big ask, but Carney may just be the right man for the job.

Calm in a crisis
Through every stage of his high-profile career, Carney has shown himself to be a dependable problem-solver. At the age of 42 – practically still a teenager in central banking years – he was promoted to the top job at the Bank of Canada, becoming the youngest ever central bank governor among the G8 and G20 nations. But banking wasn’t always Carney’s dream. In an interview with The Guardian, he admitted that banking had initially been a way to pay off his student loans after graduating from Harvard and earning a PhD at the University of Oxford. It turned out to be a good fit, however, and after proving his merit with a 13-year stint at investment banking juggernaut Goldman Sachs, he was appointed deputy governor of the Bank of Canada.

The summit showed that global finance has a critical role to play in the fight against climate change

It was while he was on secondment with Canada’s Department of Finance that he was called up for the role of governor at the Bank of Canada, assuming the post against the turbulent backdrop of the rapidly unfolding global financial crisis in February 2008. Taking on the top job at such an unprecedented, volatile and financially calamitous time was not for the faint-hearted. Yet it was in these testing times that Carney proved himself on the global stage. Just one month into his tenure, he slashed Canada’s interest rates, providing something of a fiscal injection and boosting market confidence at what proved to be a pivotal moment in time. Months later, other central banks followed suit, but by then it was simply too late. Carney had acted quickly and decisively, and his actions at this time are said to have spared Canada the very worst impacts of the financial crash. After a few short months in his post, it was already clear: Carney was a good leader in a crisis. It is perhaps unsurprising then, that four years later the Bank of England came knocking on his door.

Never smooth sailing
In 2012, the British economy was in a very sorry state. The UK had fallen into a deeper post-crisis recession than experts had anticipated. With GDP in decline, the country entered into its first double-dip recession since the 1970s. The Bank of England, meanwhile, was increasingly seen as an antiquated institution in urgent need of a refresh. And with the serving central bank governor nearing the end of his tenure, then chancellor George Osborne had just one man in mind to take over the role. However, Carney wasn’t easily sold on the Bank of England job, repeatedly turning the position down until the chancellor was forced to sweeten the deal with a more attractive offer. Securing a salary over double that of his predecessor, Carney officially took the helm in July 2013, becoming the first foreign governor of the Bank of England since the institution was founded in 1694.

“Mark Carney is the outstanding central banker of his generation,” chancellor George Osborne told MPs as he unveiled his appointment in the House of Commons. From the outset, expectations were almost unreasonably high – with representatives from across the political spectrum hailing the Canadian as something of an economic miracle worker. Yet despite these pressures, he once again rose to the occasion, quickly earning the nickname ‘Capable Carney’ in the British press.

The financial sector’s $130trn net zero pledge is undoubtedly a watershed moment

One of the first items the incoming governor had to tackle was making the Bank of England a more open and communicative institution. It goes without saying that changing the company culture and working practices of a 319-year-old establishment was no easy task, but it was certainly a necessary one. When Carney joined the Old Lady of Threadneedle Street in 2013, public distrust of the banking system remained high, with central banks expected to lead by example when it came to rebuilding trust and establishing a more honest and open working environment. In August 2013 – just one month after assuming his role as governor, Carney launched the bank’s ‘forward guidance’ policy, signalling his intention to make monetary policy more accessible and transparent.

More specifically, he wanted to give financial markets, businesses and the wider public a clear picture of the bank’s future interest rate policy – something that the institution had been famously tight-lipped about before his arrival. This early activity was a sign of more work to come on improving communications and transparency – which is now seen as one of Carney’s most noteworthy achievements from his seven-year tenure at the bank.

By 2016, Carney had made good progress. Under his stewardship, the Bank of England had implemented some necessary post-crisis changes and the British economy was in recovery, with GDP now growing again after taking a nosedive in the years following the financial crash. If Carney had been drafted in to solve a crisis, he was certainly well on his way to fulfilling that demand. Then, just as one crisis appeared to be over, another one landed on his desk.

The Brexit blues
Markets were jittery in the weeks leading up to the UK’s landmark EU membership referendum. As Britons headed towards the polling booth, Carney warned that a vote to leave the EU could trigger a new recession just as the country emerged from the last. This comment prompted Eurosceptic backbench MP Jacob Rees-Mogg to label Carney as an “enemy of Brexit,” but the Bank of England governor defended his position, insisting that the bank’s role was to “identify risks, not to cross your fingers and hope risks would go away.”

If we are to build a new, more sustainable world, it is only right that we also create a new, more sustainable financial system

And indeed, the Brexit risks didn’t disappear. In the early hours of June 24, 2016, the results were in: Britain had voted to leave the European Union. By the morning, the pound was plummeting and the Prime Minister had resigned. In the midst of the unfolding chaos, Carney once again took charge, offering reassurance to the nation in a televised address, broadcast shortly after David Cameron’s resignation. “We are well prepared for this,” Carney told the cameras in his presidential-style address. Overnight, a political vacuum had opened up in the UK, and it fell to the Bank of England governor to restore a sense of stability and calm to markets, business owners and British households. Determined to avoid an economic downturn, Carney soon set out his post-Brexit plan, with the press praising him as the only “adult in the room” at a time when the nation needed stable and decisive leadership.

Entering into all too familiar crisis-management mode, Carney slashed interest rates to historic lows in an effort to safeguard financial stability. “There is a clear case for stimulus, and stimulus now, in order to be there when the economy really needs it – to have an effect when the economy really needs it,” he said at a news conference upon announcing the base rate cut. In the months that followed, Carney stuck to his plan, acting calmly and quickly to keep the economy from plunging into the recession that he had so feared.

Just a few months on from the pivotal Brexit vote, the Theresa May-led Conservative government implored Carney to stay on as Bank of England governor for an additional year, taking his tenure at the institution through to June 2019. The Canadian dutifully agreed to serve an additional year, confirming that he would remain in post in order to help the UK to navigate its tricky exit negotiations with the European Union. However, as UK-EU talks rumbled on and Carney’s departure date loomed large in the diary, he was once again asked to extend his tenure – this time out to January 2020 to ensure a smooth Brexit transition.

So, having steadied the ship through the choppy Brexit waters, Carney was relieved of his duties after serving almost seven years in the Bank of England top job. After steering the institution through two ‘once-in-a-lifetime’ crises, he was now ready to take on the next global challenge: the threat of climate change.

Onto the next crisis
Nobody would have blamed Carney if he had decided to enjoy some well-deserved down time after departing from the Bank of England. But it seems that is just not his style. A long-time vocal advocate for action on climate change, he was appointed as UN Special Envoy for Climate Action and Finance in March 2020, with the aim of whipping up private finance to fund global climate goals. Net zero can still be a hard sell in the financial world – but if anyone is up for the challenge, it’s Carney.

Drawing on the same practical, problem-solving approach that served him so well during his banking career, Carney has spent the last 18 months persuading the world’s biggest banks to lend their support to international climate goals. Specifically, he has been influencing banks, insurers, pension funds and asset managers to invest in schemes that are aligned with the Paris climate agreement goal of limiting global warming to 1.5 degrees Celsius. COP26 saw months of tough negotiations come to fruition, with a Carney-led coalition of 450 powerful players from the world of finance – known as the Glasgow Financial Alliance for Net Zero (GFANZ) – all pledging to manage their assets in line with that 1.5 degrees Celsius pledge (see Fig 2). “Right here, right now is where private finance draws the line,” Carney told delegates on ‘finance day’ at the COP26 summit in Glasgow. “Up until today there was not enough money in the world to fund the transition. And this is a watershed.”

Between them, GFANZ members control more than $130trn, and will be using their deep pockets to fund sustainable green projects across the globe. As Carney observed in his COP26 speech, the creation of the GFANZ coalition is something of a watershed moment for the financial world. For many years, getting Wall Street to go green seemed like an impossibility. After all, investors tend to follow the money – and for decades, that money was in oil and gas. Sustainable investments have historically been seen as more risky, producing lower returns than their fossil fuel competitors.

But the tide now looks to be turning for green investments, with data showing that sustainable investments are now outperforming their more conventional peers. Fossil fuel investments, meanwhile, are becoming increasingly risky. As world leaders pursue an accelerated net zero transition, new research shows that half of all fossil fuel assets could become worthless by 2036. Investments in oil, gas and coal now risk becoming stranded as the world looks to decarbonise, making renewables and green solutions an ever-more attractive alternative.

“Private finance is judging which companies are part of the solution, but private finance, too is increasingly being judged,” Carney said in an interview for the United Nations website. “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.” Indeed, with the call for global action on climate change now reaching fever pitch, the financial world can no longer ignore this plea – in order to stay both reputable and profitable, it will need to become part of the climate solution.

Finding values
If we are to build a new, more sustainable world, it is only right that we also create a new, more sustainable financial system. The financial world has always had a fundamental role in helping to shape global development, and the pledges struck at COP26 put finance at the heart of the global fight against climate change.

The world is emerging from the great lockdown, shedding its past and transformed into something new

Carney’s vision of “a financial system entirely focused on net zero” may seem idealistic to some. After all, can a financial system ever be entirely focused on anything other than, well, finance? And yet Carney’s $130trn COP26 coalition shows that financial net zero might be closer than we think. If now is indeed the moment for change, then why not dream big?

This is the concept that underpins Carney’s bestselling book, Value(s): Building a Better World for All. The title reflects the optimistic tone of the banker’s bold manifesto, which advocates for creating an economy – and indeed, a wider society – based on human values, instead of market values. Sticking to a topic that he happens to know all too well, Carney argues that a crisis in shared common values has brought about the three major crises of our time: the financial crisis, the COVID-19 crisis and the climate crisis. All too often, he argues, our fundamental human values are cast aside in favour of what is materially valuable, leaving us living within systems where price takes ultimate precedence.

We live in radical times
After a 30-year career on the frontline of finance, Carney appears to have reached a firm conclusion: that the system requires profound change. To some, this might seem like a radical stance. Yet we are living in radical times. Our ‘new normal’ is one largely defined by uncertainty and instability in almost every aspect of our daily lives. The pandemic has brought to light just how fragile our societies and the systems that uphold them truly are – and has prompted a revision of values at a scale we have perhaps never seen before.

Like a butterfly from its chrysalis, the world is emerging from the great lockdown, shedding its past and transformed into something new. There is a shared desire to create a new, better world than the one that came before – one in which we treat each other, and indeed our planet, with more kindness and respect. If there was ever a time for change, for hitting the reset button, then it’s right now. And with its deep pockets and mighty global influence, the financial world is well equipped to lead that transformation. As rose-tinted as it may seem, Carney’s vision might just be the blueprint the financial world needs as it cautiously enters its next chapter.