“We’re living in an age of crises. Crises in finance, health, energy and geopolitics,” said Mark Carney, UN special envoy for climate action & co-chair, Glasgow Finance Alliance for Net Zero (GFANZ), during an online presentation at the Sustainable Finance Forum 2024, an event organised by Luxembourg for Finance.

Carney was governor of the Bank of Canada from 2008 to 2013 and governor of the Bank of England from 2013 to 2020.

During his remarks on Tuesday, Carney estimated that those shocks lowered global growth output from over 5% at the end of the 1990s to about 2.5% today. He thinks that our “biases towards efficiency in the present over resilience in the future” are responsible for losses of “hundreds of trillions of dollars” with climate change being the main victim.

Conversely, Carney believes that the “greatest opportunity is to build a sustainable economy.”  He noted the focus of entrepreneurs, innovators and businesses on “the enormous value that can be created by solving this existential problem,” an environment supported by a social consensus in favour of the energy transition.  

Investing in climate opportunities may yield excess return

Without being specific, Carney suggested that decarbonisation is a “key driver of competitiveness” that generates “valuation premiums across sectors for outperformers.” He suggested that climate laggards turning into leading companies are “generating excess returns.”

Despite having made inroads, he thinks that the climate commitments and policies of countries are “are still insufficiently ambitious.” He is pushing for the energy transition to “ramp up sharply across a broader set of countries.” Besides, he is concerned that climate finance is experiencing friction when flowing into emerging and developing economies.

There is urgency as Carney expects the “carbon budget” to limit temperature rises to 1.5 degrees, a level already reached last year “on some measures… will be exhausted by the end of this decade.”

Carney is optimistic that efficient policies on net zero transition may even help revitalise growth. He observed that “emissions curve is beginning to bend” but achieving climate justice will be challenging as it will require the construction of an innovative and sustainable financial system to ensure that “the whole will be more than the sum of its parts.”

Closing gaps on data, action plans and clean energy investments

“To close the climate data gap, we need consistent, comprehensive and decision useful climate disclosure,” said Carney. Endorsed by International Organization of Securities Commissions, he wishes that the official standard developed by International Sustainability Standards Board from the (TCFD) will be adopted by all countries “as soon as possible.”

Carney considers as crucial that “every stakeholder has free access to companies’ emissions data” i.e. their targets and performance for reducing emissions.

In parallel with data disclosure, Carney explained that “every country, city, company and financial institution need a credible science aligned to fulfil their commitments.” He proudly reported that 250 major financial institutions across the world will set out their transition plans in 2024 according to the GFANZ recommendations.  

Carney thinks that increasing the quantity and the quality of net zero transition plans “is likely to be one of the most impactful policy steps that can be taken.” He is expecting the that “all transition financing” should report on the anticipated emissions reductions. He thinks that it will support investment into large reductions of emissions instead of “simply crowding into low emitting sectors” such as tech and services.

Carney sees positively the growth in clean energy investments (+40% since 2020) which reached $1.8bn, a level that is almost twice the level the fossil industry has been investing. He is optimistic that this level may reach $4.5bn by 2030 on the back of further investments into wind and solar which experienced the “fastest growth of electricity in history” in the last 20 years while the growth in batteries was even faster in the last eight years. This growth should be further boosted given the Cop 28 agreement where government committed to treble global renewable energy capacity and to double annual energy efficiency by 2030.

Investments in cutting emission is also central to the plan

Not a small feat given that “metals to heavy transport generate around a third of global emissions.” However, Carney stated that these industries are often hard to electrify while emission reduction depends on the advancement of new technologies. On current trajectories, Carney noted that emissions from the heavy emitting industries are expected to rise by over 30% by 2050.

Carney commented that these industries are struggling “to get financing to cut emissions meaningfully,” because of “interconnectedness… slow progress in one sector can delay action in another.” Yet he appeared hopeful that the UN’s programme, counting 1,300 companies responsible for 20% of global emissions, will foster progress.

Finance at the centre of it all

“The world has been caught in what I call a paradox of prudence, in which international financial institutions are being micro prudentially sound by minimising project specific risks but macro prudentially foolish by fostering the existential risk of climate change,” said Carney.

Consequently, he thinks that “we need to radically reform the international financial system.” He suggested that this is precisely the role of multilateral banks such as the

World Bank that should use “all of their capacities--operational, financial and technical--to maximise total financing to address climate change.” As such, Carney reported that the WB announced its intention last month to triple its loans and investment guarantees to $20bn by 2030 to boost private renewable energy investments in developing economies.

Carney also see a well-functioning carbon market as crucial. He suggested that the decommissioning of new coal plants in Asia will not be possible “without a combination of blended finance and critically, energy transition credits, centred in high integrity, voluntary carbon markets.” A costly but unescapable prospect to address climate change challenges.