Mark Carney: It is 'time for governments' to make climate-related disclosures mandatory

Former Bank of England governor says more financial institutions should commit to net zero transition ahead of the UN climate summit in Glasgow

The UN's upcoming Cop26 Climate Change Conference in Glasgow will address the most pressing climate risks facing the global economy.

Governments must join hands in making climate-related financial disclosures mandatory and support setting up a global body to establish unified sustainability reporting standards for the global corporate sector, according to former Bank of England governor Mark Carney.

The world has come a long way from when the Task Force on Climate-related Financial Disclosures (TCFD) delivered its final recommendations to the group of the world’s 20 biggest economies three years ago, Mr Carney wrote in a special issue of the International Monetary Fund’s Finance and Development magazine on climate, published in partnership with the UN Climate Change Conference (Cop26).

However, a lot still needs to be done to mitigate climate risks despite the global financial industry increasingly demanding TCFD reporting, with more than 2,000 major companies around the world responding to the calls.

“Despite these advances, coverage is still limited and reporting still incomplete, particularly of critical forward-looking metrics,” said Mr Carney, who is a UN special envoy for climate action and an adviser to British Prime Minister Boris Johnson, who will be hosting Cop26 in Glasgow in November.

“Now it is time for governments around the world to make TCFD disclosures mandatory and support the International Financial Reporting Standards Foundation’s intention to establish a new international sustainability standards board to produce a climate disclosure standard, based on the TCFD.”

The Covid-19 pandemic has brought 'Build Back Better' plan and greener economies into sharp focus, underpinning the need to invest in meeting the UN climate goals and transitioning to a net-zero economy.

The 2015 Paris Agreement provides a mandate for countries to lower their carbon emissions to well below 2°C above pre-industrial levels, preferably about 1.5°C. Energy producing nations are already investing in technologies such as green hydrogen and renewable power to meet their climate agendas.

Energy companies are also coming under pressure from activist investors, governments and courts to reduce their carbon footprint and transition to clean energy. Large institutional investors including some of the biggest asset managers around the world that follow environment, social and governance (ESG) standards are also reducing their exposure to companies with heavy carbon footprint in their portfolios.

The IMF has called for levying taxes on carbon, describing it as the most efficient way to meet climate goals within the Paris Agreement. A policy mix of carbon taxes and green investment stimulus could increase the level of global output in the next 15 years by about 0.7 per cent and create around 12 million new jobs through 2027, Kristalina Georgieva, IMF managing director, said in April.

Mr Carney said the number of global corporations with a combined market value of more than $25 trillion from 86 nations are supporting the TCFD reporting. The number has more than doubled from 1,000 in the first quarter of 2020 until July this year. The number of countries committed to implementing TCFD has surged from zero to 45, including G7 nations, over the same period.

Financial commitments to net zero through the Glasgow Financial Alliance for Net Zero (GFANZ) have surged five times to $80tn in July this year, from $5tn in the first quarter and may surpass $100tn over the next three decades.

GFANZ has brought together "over 250 financial institutions responsible for $80bn in assets and anchored in COP’s race to zero ... GFANZ is the gold standard for financial sector commitments to sustainability", Mr Carney said.

“By Glasgow [Cop26 conference], all major financial firms should decide whether they too will be part of this solution to climate change. GFANZ is a big tent, but it will be the only tent in Glasgow,” he added.

Building green energy in emerging markets and developing economies also requires immediate attention. While estimates vary, most suggest that more than $1tn in additional investment annually will be needed for the task, Mr Carney said.

“To meet this need, we must turn billions in public capital into trillions in private capital by scaling blended finance, catalysing standalone private capital flows and building new markets.

“Multilateral development banks are uniquely placed to mobilise private finance, but thus far the results have been modest, with only $11 billion mobilised in 2018,” he added.

Although the past 70 years are a success story on many counts, with the world economic output climbing 15 times, biosphere has diminished drastically over the same period, Partha Dasgupta professor of economics at the University of Cambridge, wrote in the publication. Between 1970 and 2016, the population of species fell globally by 68 per cent on average.

“The only way to combat this biodiversity crisis is through transformative change, which demands sustained commitment from actors at all levels – from citizens all the way to international financial institutions such as the IMF,” he said.