Investment managers should examine their portfolios with a climate lens as governments transition to a low-carbon economy, former Bank of Canada governor Mark Carney said Monday.
Carney, who was also head of the Bank of England, spoke at the Responsible Investment Association’s virtual conference.
“Think about your investment portfolio or your lending book, your exposures today,” said Carney, who is now vice-chair and head of ESG and impact fund investing with Brookfield Asset Management.
Investors need to consider how their portfolios would look in a world where we don’t do anything and the physical risk from climate change increases, and in a world where we address climate change to limit global warming to 1.5 degrees.
“Certain activities are unlikely to be competitive,” he said, “and how exposed are you?”
As of last year, global capital markets were funding through investments a world that will be 3.25 to 3.5 degrees warmer. Portfolios may look significantly different in a world where global warming is limited to 1.5 degrees.
“Are you backing companies that are investing to reduce their footprint?” he asked. All investors should be asking companies about their plans for net zero emissions.
Meanwhile, governments need to be clear about the scale of change required and the potential timelines for meeting climate goals, especially as those goals relate to a “just transition” for workers in the oil and gas sector.
“I would err on the side of over-investing in a just transition than trying to thread the needle on it,” Carney said.
Obvious investments to make immediately include carbon capture and storage, which makes Canada’s fossil fuel industries more competitive, Carney said, and the expertise developed could be exported. “All of that makes sense, and front-loading efforts there are incredibly important.”
Governments should also use broad investment tax credits to provide generous incentives to help companies and workers transition from polluting industries, he said.
In addition to working with Brookfield, Carney is the United Nations special envoy on climate action and finance. He has also offered policy advice to Prime Minister Justin Trudeau’s Liberal government as it develops an economic recovery plan from the Covid-19 pandemic. He spoke at the Liberal Party’s policy convention in April amid ongoing speculation that he may seek a seat in Parliament in the next federal election.
Investment Executive and Advisor’s Edge are media partners for the Responsible Investment Association conference.