From climate crisis to real prosperity

Launching a sustainable revolution means putting the market in the service of humanity

Excerpted from the BBC Reith Lecture held December 23, 2020.

In one year’s time, countries, companies and communities will try to launch the sustainable revolution, to put the market into service of humanity and once again have society’s values drive value.

Over my lifetime, the population of mammals, birds, fish, reptiles and amphibians is estimated to have fallen by 70%. Perhaps because they were not formally, financially valued, these losses were initially downplayed, and their cause was treated as an issue for another day. But now the effects of climate change are beginning to affect assets that have a market price, making the scale of the looming calamity more tangible.

With the COVID crisis exposing the tragic folly of undervaluing resilience and ignoring systemic risk, society is beginning to place greater value on sustainability, and that’s a precondition to solving the climate crisis.

Thus far, efforts to address climate change have struggled between urgency and complacency. These tensions reflect the common challenges of value. Human frailties create a tragedy of the horizon. That means the catastrophic impacts of climate change will fall largely on future generations. Market failures create the tragedy of the commons, and this arises when individuals, acting in their own self-interest, undermine the common good by depleting a shared resource.

Now there is a way out. If society sets a clear goal, it will become profitable to be part of the solution and costly to remain part of the problem. The more credible our government commitments to net-zero, the more investors will pour money in, and the more a virtuous circle of large scale and greater efficiency will operate, but that leads directly to the second challenge, which is politics.

We need a strong consensus to break the tragedies of the horizon and the commons. So far, over 126 countries have set net-zero targets. And there are a variety of industry groups and financial institutions that are beginning to commit to doing their part. Momentum’s building, but the reality is that even more is required. Social movements like Fridays for Futures, which Greta Thunberg started, give hope that society won’t settle for worthy statements followed by futile gestures. The connections between changing environmental values, changing technologies and the changing environmental politics can drive self-reinforcing cycles. Greater consumer demand for sustainable products increases the economic returns to green technologies and the political returns to green policies, and this is how a path to a more sustainable world begins.

In this context, finance can play a decisive role. The more the financial sector focuses on the transition to net-zero the more new technologies will be financed in anticipation of climate action. Sustainable investing can shift from the fringes to the mainstream, driving the transformation. This is how values drive value. And that’s why our objective for Glasgow next year [at, COP26, the 26th UN Climate Change conference] is to put in place the foundation so that every financial decision takes climate change into account.

On returns, addressing climate change is ultimately about delivering what society values. This means that the transition to a green economy can be the greatest commercial opportunity of our time. We’ll increasingly view companies and assets through the lens of the climate transition. So who is on the right and the wrong side of climate history?

If you work for a company, find out whether it has a plan to transition to net-zero. If so, great – how can it be made better? And if it doesn’t have a plan, why not? Secondly, wherever you put your hard-earned savings – in a bank, a pension pot or the stock market – find out whether it’s being managed towards net-zero. And if not, why not?
And third, ask not what the climate is doing to your country, but what your country can do for the climate.

We need a world where we’re no longer solely guided by measures like GDP, that were devised a century ago when the earth seemed immortal and the social norms of the market felt immutable. A market in the transition to net-zero is now being built on these foundations of reporting risk management and returns. In this way, private finance can bend the arc of history towards climate justice, and value can serve values.

Mark Carney is the former governor of the Bank of England and the Bank of Canada. He is UN Special Envoy on Climate Action and Finance and vice-chair of Brookfield Asset Management.

Latest from Climate Crisis

current issue