Mark Carney on the new book ‘VALUE (S)’

Mark Carney, Vice President of Brookfield Asset Management and Head of ESG Investments and Impact Fund, joins Yahoo Finance to discuss their new book ‘VALUE (S)’ and the correlation between business and climate change.

Video transcript

ADAM SHAPIRO: We’re going to change gears because a new book has been released, “Building a Better World for All”. And Akiko Fujita joins us now with the author of this book. Akiko.

AKIKO FUJITA: Yeah, let’s bring our guest, Mark Carney. Of course, our viewers know him best as the former Governor of the Bank of England. But, Mark, you have donned several hats since you left the central bank last year. You are now the United Nations Special Envoy for Climate Action and Finance, Vice President of Brookfield Asset Management, overseeing a climate impact fund. And then, by the way, you also wrote a book: “Values ​​Building a Better World for All”. It’s great to have you today. Welcome.

MARK CARNEY: Thanks Akiko. It’s great to be here.

AKIKO FUJITA: I would like to start by talking about the book. When you think about all the roles you’ve taken on since leaving the BOE, the common thread here is climate and sustainability. You raised a flag very early on, even back when you were at the BOE. When you talk about values ​​in the book, where does the climate risk fit in this discussion of values?

MARK CARNEY: Well, what’s interesting, I mean, basically, I was governor of a central bank in times of crisis. I started with the global financial crisis, I ended with the COVID crisis, and we had the climate crisis in between. And one of the interesting things happening right now is that climate change is a risk to approach climate change as an opportunity. And the book explains why this is now possible.

Indeed, it is a relationship between what we value in society – whether we value sustainability, in other words, dealing with climate change, dealing with it – that creates enormous business value in the market, in deals. And we are seeing it really catching on in the capital markets now. Part of what I’m doing for COP26, the big climate change meeting at the end of the year in Glasgow, is working with others to get all the plumbing in place, if you will, on financial markets so people can express that point of view, put capital into the companies that are part of the solution, and frankly take it away from the companies that are still part of the problem. This is how we move from risk to opportunity and, like I said, aligning value in the market with what we want is the company.

AKIKO FUJITA: When you talk about opportunity, that’s how we’ve seen this Biden administration framing the climate discussion. We have seen, at least on the American side, important policies put forward on the climate front. From a global perspective, how did the US efforts to at least regain the mantle of leadership on this issue – how did that move the needle globally on the climate discussion? before COP26?

MARK CARNEY: Well, the first thing to say, Akiko, is that there has been tremendous momentum in recent years as the United States has indeed taken a step back on these issues. Now, with the arrival of the Biden administration, with the quality of the people there, the freshness of ideas, the clear momentum, there is now tremendous momentum at every level – first, in terms of what countries are trying to accomplish – and we saw this when the president summoned a number of countries last month – more aggressive targets for Japan, for Canada, for others.

We see it in the financial sector – last week’s climate disclosure decree is one example, building the momentum that exists internationally. And we see it with American institutions. You know, one of the things that came out a few weeks ago was the biggest banks in the world, a lot of which, obviously, are American – pension funds, asset managers, others – 70 Trillion dollars in assets pledging to net zero – to achieve net zero, not just in 2050, but very clear plans are going to be made over the next few years as to where they are going to put their money to work to help reduce emissions.

So the short answer – it’s a bit late for a short answer, but the short answer is that the attention of the United States is welcome. It has a huge impact. It adds to the momentum, and we have to continue with it.

AKIKO FUJITA: Let’s talk about this organization you just alluded to, officially known as the Glasgow Financial Alliance for Net Zero – GFANZ, I guess, for short. We’ve heard the words, net zero, sort of thrown in this climate discussion. How is it defined here?

And if we’re talking about the world’s largest financial institutions, does that require divestments in fossil fuel projects?

MARK CARNEY: Yeah, so a couple of things – first, if it’s a bank or an asset manager, it’s their portfolios. I mean, obviously they have some of their own shows and they take care of that. Overall, they are getting closer to zero. So in other words, any activity that emits into the atmosphere, they outweigh either through carbon offsets or some other mechanism. But these are the people to whom they lend or invest in their emissions in the economy.

And so, that means these institutions – and there will be more to come, but these institutions behind this $ 70 trillion, what they’re looking to do is work with companies to invest so that these companies can reduce their emissions. Now that can mean renewable energy – there is a huge boom and a huge need for renewable energy. You know, 70% of emissions ultimately come from energy – and will ultimately have to come from renewable electricity – so a huge change is happening there.

And so financial institutions, to answer your question, it’s as much about investing in companies that are part of the solution as it is about divesting. Obviously, if a company does not have a plan, if it does not move to reduce its emissions, it is very risky. And they are going to be deprived of capital. This is the reality of this transition. But there is a very positive and very big opportunity. And I think that’s where most of the institutions are concentrated. Where the world is going, not what it leaves behind.

AKIKO FUJITA: To what extent must the responsibility for this climate footprint exist? There’s an interesting figure that CDP recently released looking at portfolio issues as they described them – so not direct issues from banks, but looking at their lenders. And that number when they looked at the issues was 700 times greater than what some of these banks had reported. How far should they be responsible?

MARK CARNEY: Well, Akiko, you are absolutely right. This is what they are committed to. This is why it is so important that these banks, and these portfolio managers, asset managers and others have come to the defense as the Glasgow Alliance, because they are going to report all their loans – the issues of those to whom they lend, or invest if they are an asset manager and an asset owner, and it’s those emissions that they’re going to work to reduce. And that’s what is so important to really progress. Because at the end of the day, if the financial sector doesn’t lead or help enable these emission reductions, they simply won’t happen.

AKIKO FUJITA: I’m talking about something that you lay out in the book, which is four pillars that you kind of put forward by saying, what has to be part of this new order emerging from the pandemic – resilience one of the between them. And I’m wondering, putting your central bank hat back on, where are we on this? When you look at the global economic recovery right now, and the huge amounts of debt that not only emerging economies but also advanced economies have taken on, how do you see that picture of resilience?

MARK CARNEY: Well, look, we’ve tapped into our buffers during this crisis. Of course, we absolutely should have. You know, if you’re saving for a rainy day, what day could have been more difficult than the one we just went through? So we drew – you know, debts are up for governments, debts for individuals, you know, businesses are strained, a lot of businesses are strained.

And so we’re less resilient than we used to be, and there’s a real lesson in how we need to prepare. This is the first point. The second point, one of the challenges we have as a global economy is that we are in very different positions. We know this in terms of vaccinations, but also in relative economic terms. Health and this is a challenge for the large emerging economies, and certainly the developing economies.

China is a bit of a special case. But overall, it’s a more difficult situation. It might be more difficult for a longer period. And that’s one of the headwinds, if you will, to put it politely, on the pace of the recovery as we move forward through this year.

AKIKO FUJITA: And one last question, I imagine you get asked a lot these days, which relates to cryptocurrency – you actually have a chapter on it. You’re sort of talking about extreme volatility reflecting the fact that, as you say, cryptocurrencies have no intrinsic value or external support. And yet we’re talking about huge swings here – a 30% jump, a 40% drop. What do you think is fueling this? And what kind of risk does this create from a financial stability perspective?

MARK CARNEY: Well, that doesn’t create such a big risk from a financial stability perspective because the crypto ecosystem isn’t as connected to the core of the financial system. So there isn’t a lot of exposure for large institutions. There aren’t many loans against crypto assets. And so therefore, it is limited.

It tells us something about what we’ll need to do if they get closer to the center and provide more resilience around it. I think that also tells us that, on the whole, it will not be the heart of the financial system. And I’ll end on that – to be clear, I think we’ll have central bank digital currencies at the heart of the system.

I think it’s possible, and perhaps desirable, that we have native currencies that help facilitate smart contracts in wholesale markets, some of them even in carbon markets, potentially. So there is innovation in there. But the heart of the system – and the book reviews this – in the story, all private financial innovation is ultimately backed by the state. He’s brought back to the state because he doesn’t have that resilience. Because guess what, Akiko – there will be future shocks in the system. And you don’t want the core of your system to be the source of the shocks.

AKIKO FUJITA: Mark Carney, it’s great talking to you today – I hope to see you back on the show soon.


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