When Mark Carney returned to Canada this spring, the former Bank of England governor brought with him a new sense of urgency for a cause he’d been boosting for years. Long concerned with the risks climate change posed to the financial markets, he had always believed companies and investors would report and mitigate those risks if they understood the issues and had the tools to address them. But after three years of urging organizations to volunteer information about how floods or fires could hurt their bottom lines, Carney, in his new role as UN special envoy on climate action and finance, was now ready to play hardball: regulators, he said, must force companies, banks and investors to disclose the risks climate change posed to their operations.
In November, the U.K. became the first major economy to make financial climate-risk disclosure widely mandatory, and other countries are moving in the same direction. While Canada has made some gestures towards improving how companies and investors disclose the real and potential risks of climate change on their operations, its fragmented regulatory structure has held the country back, and experts warn it could be left scrambling if global standards take hold.
“The demand [for climate-risk disclosure] is very much coming from the suppliers of capital,” said Carney during a conference held this fall by the Queen’s University Institute for Sustainable Finance. “When you total up all the balance sheets of the systemic banks, asset owners, asset managers, it’s $150 trillion of balance sheets that want disclosure,” he said. “But that’s not going to take you all the way. It’s the official sector’s job to take that core reporting and make it mandatory.”
Governments and regulators around the world are beginning to heed Carney’s calls for more robust climate-risk disclosure. In November, the U.K. said all large companies, banks and pension funds would have to report any risks that climate change has on their operations and how they might affect customers and investors. Companies are expected to use guidelines from the Task Force on Climate-related Financial Disclosures (TCFD), a system Carney himself helped design.
Canada, however, is lagging. In the Liberal government’s landmark climate plan, unveiled in Ottawa Friday and presented to the world the next day in Prime Minister Justin Trudeau’s address to the United Nations Climate Ambition Summit, there was no new push for financial-risk disclosure.
Many finance-sector leaders believe the capital markets will have a significant impact on whether or not Canada achieves its goal to reach net-zero carbon emissions by 2050. But navigating how to gauge and report climate risk is a cumbersome task that’s complicated by a dizzying slate of acronyms—disparate standards programs—from which companies and investors must choose. Industry experts who spoke to The Logic said the country’s fractured regulatory system has also hampered what little progress policymakers have made on the file, and worry that capital could flee the country if it doesn’t catch up. Carney believes global standards will inevitably take hold. The question, he said at the Queen’s talk, is “do we take a smooth [transition] and predictable one, or is it late and abrupt … where there’s a lot of stranded assets and sharper adjustment?”