Carney: Data interpretation key to zero carbon transition

Investors must learn how to interpret, and apply, the increasing volume of ESG data if they are to formulate successful strategies to tackle climate change, according to the former Bank of England governor Mark Carney.

Addressing members of the Personal Investment Management and Financial Advice (PIMFA) trade group at a virtual conference, Carney said that the financial services sector was now “leading” governments in terms of developing strategies to address the world’s climate issues.

However, speaking in his new role as UN Special Envoy, Carney warned that investors cannot formulate successful strategies by just using pre-formed information sets. They need to be active in tailoring their own strategies, he said.

“This is not a passive investment strategy,” he told delegates. “You need the information, but you also need the judgements around it.”

Carney said that the Covid-19 crisis had resulted in a temporary fall in the level of global carbon emissions, but warned that a wholesale economic adjustment was still needed if the world is to achieve net zero emissions by 2050.

“This isn’t just about niche products or renewable solutions,” he added.

He praised the Task Force on Climate-related Financial Disclosure (TCFD) for its influence on corporate reporting, noting that disclosures were increasingly becoming more consistent. However, he stressed that a mandatory standardised reporting protocol for non-financial disclosures was needed.

“From a demand side, the demand for this type of disclosure is very high,” he explained.

“We’re talking about companies with huge balance sheets. If you total up the assets under management it’s $130 trillion. Banks want it, insurance companies want it, the ratings agencies want it.”

The former Bank of England governor said that for business to become net zero in terms of carbon emissions, a risk-based approach was needed. This “second stage” involves mapping specific steps for how companies transition to the new net zero carbon world.

“What we all want for the economy is a smooth transition to net zero and a predictable path towards those changes. The more predictable climate policy is, the easier it is to do that,” he added.

Carney warned investors against simply divesting from companies with poor climate profiles and moving on. He said that a more nuanced approach was necessary if real progress was to be achieved.

“If we don’t come up with ways of communicating how important a company is in a portfolio the whole thing becomes quite binary and it won’t achieve that whole economy transition.”