Mark Carney Questions the Critics of Bankers' Climate Record
As chief architect of the finance industry’s biggest climate coalition, Mark Carney said banks and asset managers are doing a better job at steering capital away from fossil fuels than is implied by what he described as “clickbait” headlines.
In an interview to mark the one-year anniversary of his launch of the Glasgow Financial Alliance for Net Zero, the former Bank of England governor and current vice chair of Brookfield Asset Management said that expecting banks to eliminate all financing of carbon-intensive industries is unrealistic. He also said efforts to steer capital away from fossil fuels are being slowed by Vladimir Putin’s war on Ukraine and its geopolitical fallout, which means greenhouse gas emissions will rise from already dangerous levels in the coming years.
Speaking from Washington, Carney said one of the next goals is to expand GFANZ membership, which currently includes giants such as BlackRock Inc., JPMorgan Chase & Co. and HSBC Holdings Plc. He said the $130 trillion alliance hasn’t given up on Asia, where Chinese banks are the world’s biggest contributors to coal finance. And GFANZ is now developing a framework to help signatories cope with stranded assets, to track how much firms are doing to move to a low-carbon world, and to measure the level of global warming implied by investor portfolios.
If the first phase of GFANZ, GFANZ 1.0 if you will, was about getting as many firms as possible through the door, what will GFANZ 2.0 be about?
One is tempted a bit to say 1.0 is getting people to make their commitments. Now, my little caveat is that we're continuing to grow GFANZ and we're growing in Asia, and we haven't given up on that. But let's say 1.0 is the commitment. You'd be tempted to say then the next thing we're doing is all of this plumbing work; you know, how do we operationalize those commitments into net-zero plans and transition paths. And then you'd say 3.0 is actually taking the commitments and this operation and actually doing something, right. Right now the 3.0 is happening at the same time as the 2.0.
How do you assess the achievements and accomplishments of GFANZ in its first year?
I think it's a success of GFANZ and other initiatives, whether that's the overall COP process, that the focus on the transition to net zero is now mainstream. (Michael Bloomberg, the owner and founder of Bloomberg LP, is co-chair of the alliance.)
It sounds crazy but if you go back to when we launched the “Road to Glasgow” [Carney’s plan for the private finance sector activities at COP26], which would have been February 2020, and if you look at the language we used there, that was pedagogical for 90% of the people in the room.
It was all about the transition to net zero and how we need to build a system for that, how we need to mainstream it and to have every decision to take climate into account. And so now the dialogue, fortunately, is much more specific. It's about are we moving fast enough? Do we have the right information? How do we judge it? What about these pathways? So you know, the success is that it's moved onto the playing field toward where it needs to be in order to to get this done.
I think the other thing which is a little hard to judge is what’s happening with the official sector. There’s a much greater recognition that this is fundamental. So it's not just about climate disclosure and risk, which is what the Task Force on Climate-Related Financial Disclosures is about and is absolutely necessary, but it's about moving towards alignment for the transition. And the big thing we're trying to get across, and I'm not trying to say this as an excuse, but finance can take things so far.
But in the end, it’s an enabler. It’s a catalyst. You need the other components, and we’ve got this orientation there now towards net zero and intentionality. And I believe that actually there’s a lot of commercial opportunities with this as well, which is necessary to really pull the attention of the industry. But if policy can be clearer and more predictable, then you really can maximize the benefit of all that.
Do you see it as the function of GFANZ to look at accountability, i.e. accountability on whether members follow through on their net-zero ambitions?
I think it’s a very important component, but we’re not an enforcement agency. We are big believers in transparency, and in order for there to be accountability, you need consistency so that stakeholders can judge. And that’s what’s being put in place and that’s why we need a consistent view of what’s necessary in a net-zero transition plan for a financial institution.
Bloomberg data show that in the past year, banks have helped arrange about $600 billion of loans and bond sales for oil, gas and coal companies. That’s about equivalent to what they provided the previous year. How can we reconcile these numbers with net-zero commitments?
If you have an existing pipeline and I buy it from you and I get a loan for that, OK that's fossil-fuel financing. But is that pipeline asset part of the transition? Is it adding to emissions the fact that you’ve transferred ownership of the pipeline to me?
Now, part of the answer will be does the buyer of the pipeline have a transition plan and what’s the horizon they are going to run the pipeline for? And is there expansion of production? Does it have hydrogen? All those sorts of elements you need to start to think about when you think about the transition to net zero.
And by the way, your number is broadly consistent with what the International Energy Agency says financing should be in the energy sector for a 1.5 degree transition, which is something that nobody puts in any of their articles because what people like to do for clickbait, to be blunt, is to say, well, the IEA said no new expansion, and so what's implied for somebody who isn’t an expert in it, which is most people, is that anything above zero is too much. Well, that's not realistic. That's not what the IEA says.
In terms of the way that the capital markets, the way that the system works, people have existing assets they sell to other people. Are you taking into account the retirement of existing debt? Of course not. Because what’s more interesting is to write the article that says there’s this number and it’s supposed to be that. The brutal reality is that financing for clean-energy sources is running at a third of the rate it needs to. It’s gone up a lot, it’s higher than the financing of fossil fuels at up to $700 billion, but it needs to be over $2 trillion.
And so who’s part of the solution for that? What goes to your question around energy financing is a need for much more granularity around that and clarity on what is maintenance and what is expansion. And, you know, one of the things that’s going to happen is that because of Russia’s unjustified invasion, and the response to that, there is going to be more investment in fossil fuels and financing of fossil fuels in the near term.
And that's part of an insurance premium or a price being paid for greater reliability. More assets will become stranded as a consequence of that, maybe all in Russia, but more broadly potentially as well. And it’s critical that this work on the transition horizon is completed so that judgements can be appropriately made on whether this financing is OK.
I have heard other critiques of those big headline numbers for fossil-fuel finance, with some suggesting simply including all debt to fossil companies is a crude way of approaching this since some of that money could in theory finance renewables. What would be a better approach?
You need to take account of the use of the proceeds so you know where the financing goes. And another thing I’d remind you of is that it’s hard to be definitive about where the energy system will end up in 2050. We know where the emissions curve needs to go, but if you looked at the IEA’s scenario for 2050, they have something like 24 million barrels per day of oil produced largely from plastics. Well, that’s not just going to come out of the ground. There needs to be a more sophisticated approach. And then the problem is that it would be helpful to reference the right aggregate numbers.
The Science Based Targets initiative recently said any finance firm that wants to get their emissions targets approved by the group will need to include clear limits on fossil-fuel financing. Do you think that that's a sensible approach?
SBTi does a lot of great work, but one area where they had not produced is on a pathway for the oil and gas sector. They just delayed again, their production.
We have got to get on with this: We need a reference, a sectoral pathway reference for the energy sector. So the SBTi isn’t providing that yet, it’s opining on this. I’m sorry, but we’d like to reference it. As I say they do great work, but they’re not comprehensive. They’re missing the most important element.
Does the war in Ukraine encourage what you might call net-zero backsliding from the finance sector?
I think that first and foremost that question goes to governments in terms of their energy plans and responses in the near term. And I said on Bloomberg TV (April 20) that near term, there’s more emissions. This situation makes the job harder.
Everyone likes writing the article it’s finance that’s the problem, but the big question is what’s the medium-term response to shift the energy sector? And I think the very clear message from GFANZ is the finance for an accelerated transition is absolutely going to be there.
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