As the world turns through the current economic and political crises, it is hard to imagine that governments will follow Mark Carney’s climate-alarmist agenda.
It’s 8 a.m. Friday. While the world economy flaps in the wind of central-bank imposed zero interest rates, as Brexit threatens the very existence of the European Union, as some banks and nations teeter on the brink of insolvency, as climate skeptic politicians grab headlines in Britain and the United States, there on stage at a Toronto Board of Trade breakfast event sat Bank of England Governor Mark Carney, the world’s Alarmist-in-Chief, basking in Liberal adulation and fielding lob-ball questions in which he is asked to rehash his notes from a speech he gave last September on the subject of climate change and financial stability.
No Brexit questions, thank you. Nothing about the Bank of England’s latest interest rate incoherencies, and certainly not a word about Prime Minister Theresa May or Boris Johnson, Britain’s new foreign secretary who holds views that are the direct opposite of Carney’s on any number of subjects, from Brexit to climate science. Not a word about the British pound or the British economy and their remarkable failure to self-destruct as Carney and the Bank of England had warned prior to the referendum.
No conflict at all, in fact. Carney was introduced as the former governor of the Bank of Canada “whose calm and steady hand helped guide our country, and arguably the global financial system, on the heels of the global financial crisis.” And today “the world again is looking to him as we face uncertainty in the wake of Brexit.”
And also now, apparently, the world continues to turn to Mark Carney for climate change salvation.
Looking tanned and fit, Carney then engaged in mutual climate policy admiration with Catherine McKenna, Canada’s minister of the environment and climate change, who felt it necessary to remind the audience that they were sitting in downtown Toronto on territory that belongs to First Nations. Carney’s message, like McKenna’s, is that climate change poses severe century-long risks to the economy that must be addressed now by the world’s corporate leaders.
From too much short-termism, the business world is now being asked to engage in extreme long-termism, planning for 2030 and galaxies beyond.
Carney’s September speech to Lloyds of London, already viewed by many as inappropriately political climate alarmism from a central banker masquerading as financial common sense, set in motion an international movement to impose long-range climate predictions on short-term investment decisions. As climate alarmist-in-chief, he warned of “stranded” oil, coal and gas assets as climate policy shifts, putting at risk trillions of dollars in value and threatening financial stability.
As he did with Brexit, Carney portrays climate change as a potential financial catastrophe unless steps are taken now by the world’s financial players to integrate climate and carbon risks into all their decision-making and financial disclosure. For example (in case there were any complacent corporate directors in the audience) Carney raised the prospect of directors’ liability over climate change. With no information, he asked, “When would you know with a reasonable degree of certainty about the potential damage of the activities of the corporation?” Would failure to know send directors to jail?
The broad concept seems simple enough. “From a financial regulatory perspective,” as Carney explained it Friday, “the issue we have is that investors, credit providers, management, other stakeholders, can’t make assessments today about how well prepared companies are.” How ready are they for carbon pricing and other regulatory mega-policies that could dramatically alter the economic structure of the world?
One of Carney’s approaches, repeated in Toronto, is to warn of possible “Minsky moments.” If corporations and financial institutions were to reveal all climate risks, the world could avoid “a climate ‘Minsky moment’” — a reference to the work of economist Hyman Minsky who tried to understand the causes of sudden massive financial collapses and crashing asset values. Could carbon policy-making and climate change produce another Minsky moment?
If corporations tabulated, understood and disclosed their carbon and climate risks, the financial system would be ultimately safer, Carney says. If corporations and the financial system were assessed via a market for information around climate, it would allow “feedback between the market and policymaking, making climate policy a bit more like monetary policy.”
That note, to central bank watchers, may not be all that comforting. The world’s monetary policymakers, with all the credit and institutional information at their disposal, have a dismal if not catastrophic record of anticipating Minsky moments. Monetary policy, moreover, has a short-term horizon of a few months to a few years and seldom gets it right. To expect corporate managers to be able to analyze, forecast and disclose risks that a business might face over decades is a wild stretch. Over time, half the public institutions in existence today could well be out of business in half a century for any number of reasons.