Book value

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

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

Video transcript

ADAM SHAPIRO: We’ll shift gears because a new book is out, “Building a better world for all.” And Akiko Fujita joins us now with the author of this book. Akiko.

AKIKO FUJITA: Yeah, are bringing our guest, Mark Carney. Of course, our viewers know best as a former governor of the Bank of England. But Mark, you have donned many 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 by the way, you also wrote a livre– “Values are building a better world for all.” It’s great to have you today. Welcome.

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

AKIKO FUJITA: Let me start by talking about the book. When you think about all the roles you’ve taken on since leaving BOE, the common thread here is climate and sustainability. You raised a flag early on, even in your time at the BOE. When you talk about values in the book, where climate risk in this discussion of values lie?

MARK CARNEY: Well, that’s interesting … I mean, basically, I was central bank governor during a period 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’s a relationship between what we value in society – whether we value sustainability, in other words, coping with climate change, coping with it – that creates enormous commercial value in the marketplace, in deals. And we’re seeing that really spill over into 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, if you will, in the markets financial resources so that people can express that point of view, put capital behind the companies that are part of the solution and, frankly, take it out of the companies that are still part of the problem. This is how we move from risk to opportunity and, as I said, aligning market value with what we want is society.

AKIKO FUJITA: When you talk about opportunity, this is how we saw this administration Biden frame the discussion on climate. We have seen, at least on the American side, important policy put forward on climate front. From a global perspective, how the efforts of the United States to at least regain the leadership on this issue – how does he moved the needle global discussion on climate before COP26 ?

MARC CARNEY: Well, the first thing to say, Akiko, is that there has been tremendous momentum over the past few years as the United States has effectively 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 the ideas, the clear momentum, there is now tremendous momentum at all levels – first, in terms of what countries are trying to achieve – and we saw when the president convened 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 executive order on climate disclosure is one example, building momentum that exists internationally. And seen with US institutions. You know, one of the things that came out a few weeks ago was about the biggest banks in the world, many of which, of course, are American — pension funds, asset managers, etc. get to net zero, not just in 2050, but very clear plans will be made over the next few years as to where they are going to invest their money to help reduce emissions.

So the short answer – it’s a little late for a short answer, but the short answer is that the attention of the United States is welcome. This has a huge impact. This adds to the momentum, and we must continue on this path.

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

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

MARC CARNEY: Yeah, so a couple of things — first, if it’s a bank or an asset manager, it’s about their portfolios. I mean obviously they have some of their own shows and they’re tackling them. Overall, they are close to zero. So, in other words, any activity that emits into the atmosphere, they remove it either through carbon offsets or some other mechanism. But it comes to those to whom they lend or invest in emissions in the economy.

And so what that means is that 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 eventually have to come from renewable electricity – so a huge shift is afoot.

And so financial institutions, to get to 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 plan if it does not act to reduce emissions, it is very risky. And they will be deprived of capital. This is the reality of this transition. But there is a very positive and great opportunity. And I think that’s where most institutions focus. Where is the world, not what he leaves behind.

AKIKO FUJITA: How should the responsibility for this climate footprint exist? The CDP has recently published an interesting figure on emissions of portfolio as he described it – so no direct emissions of banks, but their lenders. And these, when they examined the emission was 700 times that some of these banks had said. So far they must be held accountable?

MARC CARNEY: Well, Akiko, you’re absolutely right. That’s what they committed to. That’s why it’s so important that these banks, portfolio managers, asset managers and others have stood up for themselves as the Glasgow Alliance, because they’re going to report all of their loans — the issuances of those who they’re lending to, or investing in if it’s an asset manager and an asset owner, and it’s those emissions that they’ll be working on to reduce. And that’s what’s so critical to real 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 want to talk about something that you lay out in the book, which is four pillars that you sort of put forward saying, what needs to be part of this new order coming out of the pandemic – resilience one of ‘between them. And I wonder, putting on your central banking hat, where are we? When you look at the global economic recovery right now, and the huge debts that not only emerging economies but advanced economies have taken on, how do you see that picture of resilience?

MARK CARNEY: Well, listen, we have drawn on our reserves during this crisis. Of course we should have done. You know, if you save for a rainy day, what a day might be more difficult than the one we have just been through? So we shot – you know, debts are rising for governments, debts are rising for individuals, you know, companies are stretched, many companies are stretched.

And so we’re less resilient than we used to be, and there’s a real lesson in how we have 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. The health and it is a challenge for the major emerging economies, and certainly for developing economies.

China is a bit of a special case. But overall, this is a more difficult situation. This may be harder 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 devote a chapter to it. You’re kind of talking about extreme volatility reflecting the fact that, as you say, cryptocurrencies have no intrinsic value or external backing. And yet, we’re talking huge swings here – a 30% jump, a 40% drop. According to you, what feeds it? And what kind of risk does that create from a financial stability perspective?

MARK CARNEY: Well, it does not create an important risk point of view of financial stability, because the cryptographic ecosystem is not as connected to the heart of the financial system. There is not much exposure to large institutions. There are not many loans against cryptographic assets. So therefore, it is limited.

This tells us something about what we should do if they move more to the center and offer greater resilience around it. I think it also shows that, overall, the latter will not be in the heart of the financial system. And I close with this – to be clear, I think we’ll have digital currencies by the central bank in the heart of the system.

I think it’s possible, and perhaps desirable, that we have local currencies that help facilitate smart contracts in wholesale markets, some of them even in carbon markets, potentially. So there is innovation. But the heart of the system – and the book goes through this – in the story, all private financial innovation is ultimately supported by the state. It is returned to the state because it does not have this resilience. Because guess what, Akiko… there will be future shocks to 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 to talk to you today – I hope to see you soon in the series.