Photographer: Simon Dawson/Bloomberg

Carney Says Green Finance Can Help Prop Up Global Economy

  • Bank of England chief says markets braced for ‘disaster’
  • Companies told to report climate scenarios and strategies

Bank of England Governor Mark Carney said green finance could help prop up global economic growth if policymakers smooth pathways for investors to channel $100 trillion locked up in fixed income markets into projects that reduce pollution.

Seeking to make a macroeconomic case for investing in lowering greenhouse gases, Carney noted that the global economy has remained weak despite “years of unprecedented monetary policies” and steps to repair bank balance sheets. Business and investors, he said, appear to be “hedging future disaster risk.”

“Green investment represents a major opportunity for both long-term investors and macroeconomic policymakers seeking to jump-start growth,” Carney said in a speech in Berlin on Thursday. “For this to happen, however, green finance cannot conceivably remain a niche interest over the medium term.”

The comments elaborate remarks Carney has been making for the past year urging investors to more carefully evaluate the risks of climate change and start tilting funds toward industries that avoid greenhouse gas pollution. Tapped by the Group of 20 nations to set out best practices for company reporting on climate risk, Carney has become one of the most prominent figures in the financial world pushing for investors to focus on climate change.

Funds Needed

Carney noted estimates from the International Energy Agency that the world may need 45 trillion euros ($50 trillion) of investment in power networks and energy efficiency to meet a United Nations goal of holding global warming to well below 2 degrees Celsius (3.6 degrees Fahrenheit). He said authorities are looking for ways to mobilize green investment, especially through green bonds.

Green bonds are fixed-income investments designed to fund environmentally friendly projects such as renewable energy or cleaner public transport. The market, which was $3 billion in 2012, ballooned to $42 billion last year and may double in size this year, Carney said, citing estimates from the Climate Bonds Initiative. He said that represents less than 1 percent of holdings by global institutional investors.

“The development of this new global asset class is an opportunity to advance a low carbon future while raising global investment and spurring growth,” Carney said.

Setting out more detail on his ambitions for company climate reporting, Carney said disclosures of current carbon footprints are “not sufficient to reveal a company’s climate-related financial risks.” He said investors “need to know the strategic as well as the static” and should be given various scenarios each company thinks might unfold.

Bank’s Role

He reiterated that it’s not the bank’s role to tell investors how quickly they should shift funds. Instead, policymakers have a responsibility to set the framework and rules companies must follow to give investors the information they need to make judgments, he said.

“Not everyone will agree on the timing or scale of adjustment required,” Carney said. “The right information allows skeptics and evangelists alike to back their convictions with their capital.”

Carney said the panel he’s leading to set out best practice will report early in 2017 to the G-20, when Germany is leading the group.

“Companies do not know what to report or how to report it,” he said. “Investors -- even well-informed ones -- cannot access the information they need to assess the risks in their portfolios.”

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