Green deals could unlock funds
Investors should focus on climate change: Carney
Bank of England governor Mark Carney said green finance could help prop up global economic growth if policy-makers smooth pathways for investors to channel US$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 longterm investors and macroeconomic policy-makers 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.
Carney noted estimates from the International Energy Agency that the world may need 45 trillion euros (US$50 trillion) of investment in power networks and energy efficiency to meet a United Nations goal of holding global warming to well below 2 C. 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 US$3 billion in 2012, ballooned to US$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 one per cent 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.
He reiterated that it’s not the bank’s role to tell investors how quickly they should shift funds. Instead, policy-makers have a responsibility to set the framework and rules companies must follow to give investors the information they need to make judgments, he said.