Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.
Speaker 1:
Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's Exchanges and clearing houses around the world. And now welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Regular meetings of heads of state and governments from around the globe, have often convened facile minds to solve some of our most pressing problems. 76 years ago, the Yalta Conference helped reestablish Europe after World War II, made indelible by that three shot of Roosevelt, Stalin and Churchill.
Josh King:
In my day at the White House 28 years ago, the three shot of Clinton, Rabine and Arafat to sign the Oslo Accords, signaled in all of our hope at the time, the burgeoning of peace in the Middle East. Another such turning point conference is taking place this month in Glasgow, Scotland. The meeting, officially the 26th conference of the parties to the United Nations Framework Convention on climate change, but everyone is just calling it COP26.
Josh King:
"Government negotiations continue," the Wall Street Journal reported yesterday as we record this. "Yet, the real game changer, has arguably been corporate muscle," the journal said. "And exhibit A," they say, "Is the 130 trillion with a T in private capital, for the energy transition by the Glasgow Financial Alliance for Net Zero, a group of 450 financial institutions from 45 countries."
Josh King:
Listening to any of the speeches of central theme of this year's conference, was how inextricably connected the world's of finance and sustainability have become. Finance dictates how people, companies, organizations, and governments, put their assets to work. And it stands to reason that making sure that adding environmental considerations into that process for both the public and private sectors, will lead to a more sustainable future.
Josh King:
The photograph that immortalizes COP26 in history's analysis yet to be determined, but the data point may be that one number, 130 trillion. That, and perhaps David Attenborough's riveting addressed to world leaders and the constant presence of the younger generation arguing for still more action.
Josh King:
Our guest today has held multiple titles over the course of his career, has set the tone for some of the world's leading economies. He's reimagined the way that economics and finance should consider sustainability. Mark Carney is a public servant, climate finance reformer, an investor, an economist, and a well known advocate for sustainability. Our conversation with Mark Carney, is coming up right after this.
Speaker 3:
The transition to electronic trading, is gaining support in fixed income markets, presenting opportunity, and driving demand for data. At ICE, we're a leading provider for fixed income data, and analytics. We offer a comprehensive, fixed income execution solution via ICE Bonds, committed to execution quality, transparency, and information.
Speaker 3:
We provide a wide range of platforms with deep liquidity pools, that support multiple trading protocols. Our fixed income indices can be tailored to your investment strategy powered by our data. Our ESG data offers increased transparency into fixed income markets. Access the ICE fixed income ecosystem, including the ICE Bonds execution platforms, evaluated pricing, and analytics via ICE Fixed Income Select.
Speaker 3:
By creating a single point of access for our execution platforms, customers can utilize a variety of trading protocols, and manage risk. IICE supports your end-to-end fixed income workflow, increasing transparency, execution efficiency, and data access, across the fixed income marketplace.
Josh King:
Our guest today Mark Carney, is now the UN Special Envoy on Climate Action and Finance. He's had a distinguished career serving among other roles, as the Governor of the Bank of Canada, then the Governor of the Bank of England. And prior to his public service, Mark spent 13 years at Goldman Sachs. That's our NYC tick symbol GS, deeply engaged in a host of global issues. Today he serves as Vice Chairman and Head of Transition Investing at Brookfield Asset management. Welcome Mark Inside the ICE House.
Mark Carney:
Josh thanks very much for having me. It's great to be here.
Josh King:
130 trillion in finance commitments from banks and asset managers across the world, that's going to be used to finance net-zero targets in their investments by 2050. They represent about 40% of the world's financial assets, and now belong to this Glasgow Alliance for Net Zero. We're going to call it GFANZ. Can you talk a bit more about what it all means?
Mark Carney:
Yeah, I'll talk about that. And it's the core of the system getting to a place where ICE, and many respects NYC was a while back. And I'll just give a bit of context, because sometimes when things change dramatically, it's helpful to step back and see just how much it's moved.
Mark Carney:
Started 2020, about 20% of the world emissions were covered by net-zero commitments of countries. So people had signed, back in COP21 in Paris, all these agreements were made and other photo moment from your introduction. But countries hadn't really mapped them into the path that they needed to follow, in order to get to the overall objective of one and a half degrees.
Mark Carney:
So UK takes up the presidency. 20% of the world's emissions are covered by net-zero objectives of countries. Today, as we're talking, it's 90% plus. So you've seen a huge shift in countries saying, "Okay, here's our pathway, and here's some of the policies to get there." And what that's meant, is that our conversation with financial institutions, whether they're banks, pension funds, asset managers, et cetera, around the world, has become relatively straightforward to say, "Well, look, if the country, if the world's moving to net-zero on this transition path, what's your plan for the transition? Who are you financing? How do you look at the companies you lend to, or invest in? Do they have a plan? And how can you make sure the capital's there in order to support them?"
Mark Carney:
That movement, or that Alliance has really gathered momentum since it was unveiled that president Biden's Climate Summit back in April, was 70 trillion then, and we were conscious of a couple of things. One, we wanted to have the whole waterfront of finance in. So not just asset managers, we needed to have banks, asset of owners, export credit agencies, et cetera, market infrastructure.
Mark Carney:
And then secondly, it needed to be big enough to finance the overall climate transition. And Josh, as you know, there's various estimates of how much it's going to cost for the world to get from where we are today, to where we need to go. But they tend to center around a hundred trillion U.S. dollars. 100, 125 trillion U.S. dollars.
Mark Carney:
So that 130 number, allows us to say, "Look, the money's there if ... And this is the big if, "If countries and companies want it." And you and I both know, and listeners all know, finance is an enabler. It helps companies and countries do what they want to do, but it's the initiative and the innovation and the drive of those companies that really makes it happen.
Josh King:
An integral part of GFANZ's objectives, is mobilizing private capital into these emerging markets, and developing countries through private public partnerships. Why is supporting the development of ambitious country platforms that accelerate climate actually critical, to help keep the world's temperature from rising more?
Mark Carney:
We in the world, are in a position where the advanced economies shorthand the G7. We've made most of the contribution to climate change through historic emissions. Most of our carbon is still up there in the atmosphere, but on a forward basis, it's the big emitters are in the emerging and developing world. Think China, India, Brazil, others. Those countries are going to need an additional about a trillion dollars a year of capital, to have their transitions. To both be able to grow and get emissions down while they grow.
Mark Carney:
Now a trillion a year for 30 years extra, that's doable. But of course, long-term investors in the emerging and developing world, know there's some additional risks in doing that. And for some of those countries, we need to blend private capital with some loss bearing, potentially loss bearing public capital. And by the way, having that public capital, whether it comes from the world bank, or some government, it makes it less likely that a government's going to change a regulation, or expo create an asset, or do other things that sometimes happen.
Mark Carney:
So what we're looking to do, and the members of GFANZ put this money on the table and said, "Listen, we'll fund that extra trillion. We've got the resources, but we need a new approach in order to do it." Some of it will have loss bearing additional first loss. But actually Josh, there's another big element to this, which is that big asset managers, big banks, now need to find assets, projects, companies, that are on this path towards net-zero.
Mark Carney:
And they need to know in emerging and developing economies, that that is indeed the case, whether it's in Brazil, or India, or in others. And actually the official sector can help stamp, or validate those projects that are consistent with the transition the world needs to see. So it's not all about blended finance, but blended finance is a big component.
Josh King:
Talking Mark about the private sector members of GFANZ, on the greenhouse gas reduction front, we're seeing companies assessing their own emissions footprint, setting targets for reductions, implementing them. What are the best set of incentives to encourage those companies to go through this process accurately, and build, and implement it as a part of their own business strategy? You were meeting with a bunch of them in New York and sure in Scotland as well.
Mark Carney:
One is if, if we go with the highest level, the country level, there's a set of incentives that come from regulation, carbon pricing, just the direction of travel of government policy, that's necessary to ... You're coming to me from the U.S., U.S. is targeting 50% down by 2030. I'm in the UK, they're targeting 65% down by 2030. So there's a series of policies that go with that. Ultimately, policies that are really going to drive innovation in the private sector, much of which will come out of the U.S.
Mark Carney:
So first there's government policies. The second, is factual, simple disclosure. We have not had a consistent way of disclosing around climate risk, but also even things as basic as the emissions of a company, their own emissions, the emission of the power they use, and the emissions of those up and down, the supply chain. And the dynamic that's now set up Josh, is that most capital allocation decisions, whether it's a lender, or an investor, they're increasingly going to be looking at these questions.
Mark Carney:
What's your emissions footprint today? Where's it going tomorrow? Is my capital helping to get it down? If it is great, because then I will get credit for that and you're going to create value because there's this convergence. So our objective for Glasgow, was really twofold. One was to have the plumbing of the markets reorganize so that investors and lenders had the inform, and the tools, tools like stress testing, capital value at risk portfolio alignment, technique, various tools, and some new markets. Markets like markets for carbon offsets. And I know ICE is involved in helping to develop that, and that's hugely important.
Mark Carney:
So all of those elements are there so that the brains of finance and those with the capital, can make these allocation decisions. Get capital behind solutions and quite candidly, create a lot of value. This is moving beyond the risk management, which is obviously essential with climate, but it's moving to the value creation that comes with emissions now.
Josh King:
Watching some of the news over the last couple weeks from Europe, it seems like the reception that you've received from CEOs, has been very positive. But then I keep reading about meetings in other parts of the world Mark, Steve Schwartzman is in Saudi Arabia saying things like, "If you try and raise money to drill holes, it's impossible to get that money."
Josh King:
And Larry Fink, always a friend of ESG issues these days at the same conference saying, "We have these visions that we could go from a brown world and we could wake up tomorrow and it'd be a green world. That's not going to happen." Are they right, or are they trying to appease their local audience?
Mark Carney:
Look, it'd be nice if we could flip a green switch and be in this sustainable world overnight, obviously we can't. Still 80% plus of global energy is provided by fossil fuels. A lot of that's coal, a lot of it's very high emitting. And that's part of the reason why we need the a hundred trillion of investment in order to get from where we are today, to where we need to go tomorrow.
Mark Carney:
We're not going to get there without a plan and a relentless focus on getting emissions down. So there's a couple of implications of that. One is, the scale of investment in low carbon, low emitting activities. And it gets a lot of focus in the energy sector, but it's as much about helping steel companies, cement companies, get their emissions down. Those transportation sector, other things like that.
Mark Carney:
So we need to have that focus. At the same time, well, we have far too many fossil fuels, proven fossil fuel reserves in the ground. So in other words, if we burn them all, we would not achieve our climate objectives. It's clear we don't have all the fossil fuels in the right place today. You see what's going on in Europe and gas. I'm in the UK at the moment, what's going on in this market.
Mark Carney:
So there is some element and it's some element of support for those industries during this transition, but it has to be a transition. And part and parcel of that is the cost of capital, relative to the future. The future is low, relative to the past, and to some extent the present, which is relatively high. And that is the way it's going to be. And so if I bring all of that together, Steve is right and Larry is right in the sense of, yeah, it's hard to get capital for this. And yeah, it's more expensive in these area. That is consistent with the direction the world's headed.
Mark Carney:
Now, one other thing if I may, which is, and Larry actually of BlackRock very much part of GFANZ. And Larry and Jane Fraser of City Group and Oliver [inaudible 00:14:38] from Alliance, are leading work to figure out how to finance so-called stranded assets. And when I say stranded assets, I mean assets that if we're going to be on the climate path, those assets aren't going to last to the end of their full economic life, their old economic life, because we want to keep those in the sector with responsible owners who are transparently running them for a while, and then ultimately tailing them off, consistent with the transition. So big issues around the energy transition. If we are going to make the transition, there's just going to be less and less capital for the old economy.
Josh King:
You say tomato, I say tomato, sometimes Canadians and Americans can pronounce some words differently, but essentially we speak the same language and a lot of issues we are very much aligned and we look at things the same way. You and Chancellor Rishi Sunak, also convened an international partnership to welcome the, IFRS Foundation's plan for global climate reporting standards. So whatever the language is, why is having a common reporting language critical for achieving net-zero?
Mark Carney:
Critical, critical question. And tomato and tomato tastes the same, but pronounced differently. I think in financial disclosure, we all know that basically IASB standards, which is under the IFRS which most of the world uses, effectively gets to the same disclosure, very similar disclosure as FASBE disclosure in the United States. Right? They are different disclosure regimes, but they broadly show in the same picture.
Mark Carney:
In sustainability, we need a standard for sustainability. We have an alphabet soup of very well meaning proposals out there. The most important of which is something called the TCFD, which was only launched as a concept six years ago at Paris actually. And only first version rolled out three years ago. The world's coalescing around the TCFD. And so there's two pathways for that.
Mark Carney:
One, in the U.S governed by the SCC. And they're currently consulting on that approach. And we'll see what comes in the fullness of time there. And then internationally, anchored in this new body the ISSB. So the International Sustainability Standards Board, who will produce their first version of this disclosure standard the middle of next year. Now you and I are plumbers, and a lot of people who listen to this are plumbers. And that's overnight. I mean, that's like you call the plumber and the guys at your door before you hang up the phone and they've fixed your leak.
Mark Carney:
And the reason they can do that, is they're taking all of the existing work and many of the existing people. And they're bringing them in, they're merging, and they're having them work on it, because it's that important. Now, this so what to that, is just under 40 countries think it's 38 countries, supported this at Glasgow, the Chancellor and I were there for that. And that's 70% of global emissions.
Mark Carney:
So you have the U.S. going down this track. I don't want to presume what comes out of the SCC process, but there's a executive order from the president and a focus of FSOC on it. So they're likely to end up with something like this. And then internationally, a very similar approach. And low and behold, we're going to have a pretty common standard. Some local differences obviously as appropriate.
Mark Carney:
Pretty common standard globally for climate related risk, including forward looking and those listening and the institutions they represent, who are increasingly thinking about allocating capital around this, are going to have some common information on a global basis.
Josh King:
Let's turn to some of the real plumbing in the markets themselves. And we mentioned some of ICE's work in this area. You did thank you. ICE futures markets are one of the mechanisms for pricing carbon through EUA and UKA futures contracts. But there's a well known chart that the world bank maintains, that shows all of the different pricing regimes across more than 60 countries. What would get us to a world that prices carbon efficiently, everywhere and across borders?
Mark Carney:
You solve a problem by recognizing you have a problem. Getting increasing consensus around the solution. So slightly different calculations of this, but let's say we're no more than 30% of global emissions, covered by some form of pricing regime. And as you just said Josh, they vary in their coverage, the mechanisms that's there, pretty wide range of the actual prices. And in virtually every case, the prices is quite low relative to the opportunity cost of carbon.
Mark Carney:
So there has been an effort that's come through the G20. And it really only gathered momentum this year to say, "Listen, can we have a global move towards a similar pricing regime with obviously local differences?" In COP Prime Minister Trudeau, was making this point. Canada has quite a comprehensive regime. The carbon prices going up to $170 Canadian, but still big number by 2030. And that's in legislation.
Mark Carney:
Trudeau is pushing that we get to two thirds of the world's emissions covered by a carbon price, through a compliance regime, dealing with mitigation. One doesn't feel a lot of momentum in the U.S. on this. Although if there's a market built, or an economy built for a carbon price, it's the U.S. In that, no market's better than anyone else, and more innovative as an economy than anyone else. And of course, that's the benefit of a carbon price that helps drive innovation.
Mark Carney:
Look, if you have a financial sector that's forward looking, which is what we have now with this 130 trillion, something like a forward carbon price, doesn't have to be the price today. The forward carbon price, the market pulls forward the adjustment and smooths the adjustment and gets the innovation and investment in place, so that when you get to 2025, or 2030, the economy's ready for it. And actually we've created a lot of jobs and we're more efficient is the consequence.
Mark Carney:
So it's not going to spread. I'm a big believer in this. But there's another market, which is important. So just so listeners are following there's the compliance market we're trying to get emissions down. There's also a market for so-called carbon offsets and carbon credits. And to be blunt, that market has not had the standards of integrity, and compliance, and professionalism that's needed. And ICE knows this better than anybody. If you don't have those standards, well, the market doesn't take off.
Mark Carney:
And so the market for all the headlines it has today, is only about a billion dollars a year. It's nothing effectively, but that's 100 to 150 billion a year market properly designed. And you know this, but a number of organizations over 250 organizations, market participants, NGOs, emitters, and providers of offsets, have come up with the approach for that new market, new governance structure, new terms, new carbon principles.
Mark Carney:
And we have the prospect in the next year, of a voluntary carbon market really scaling for offsets. Again, why does that matter? Well, it matters for two reasons. Ultimately, it matters because these offsets actually expand our carbon budget. It gives us more room to get to where we need to go to. And secondly, it matters on an individual company basis, because companies are looking to get their emissions down. That's their first absolute emissions down.
Mark Carney:
But in some countries, they're expected to compensate for the emissions they have. And the only way they can compensate for them, is through these offsets. So it's a big piece of the puzzle. My personal view, is that it will really gain traction, because the hard work has been done to get it to a level of professionalism, and high integrity that's needed.
Josh King:
You mentioned the G20 earlier. It didn't meet last year. It met this year in Rome just before COP26 began. Talk about these family photo shots Mark. There's all of them standing in front of the Trevi Fountain, throwing a coin in and making a wish and probably wishing that we could suddenly go green. But and you mentioned all the work that Prime Minister Trudeau is doing. His neighbor to the South, President Biden has vowed to double annual aid to developing nations, to address climate change to 11.4 billion per year. But Mohamed Adow the Director of Power Shift Africa says, I'm going to quote him here. "The U.S. is still woefully short of what it owes." Is he right?
Mark Carney:
This is one of the thorniest issues at COP. There was a commitment made 10 years ago, 11 years ago in Copenhagen, that the advanced economies would send 100 billion a year effectively. I mean, through various mechanisms, including the World Bank and others, to the most vulnerable countries in the world, to help with this transition for climate change and help with the impact of climate changes. This is much about adapting to the extreme weather.
Mark Carney:
And advanced economies as a whole, not just the United States have come up short. This week in COP, what came across was a plan anchored in the U.S., UK, Canada, others stepped up for more. And basically over a five year period, it averages 100 billion a year. It scales up by 2023. And that's been met with a degree of acceptance shall we say. I wouldn't say widespread enthusiasm, but a degree of acceptance. What's critical for tax payers around the world, is that money has maximum impact.
Mark Carney:
And Josh, you touched on part of it earlier, which is well, part of way you have maximum impact, is you make sure if there's a dollar of public money going in, it helps to catalyze multiple dollars of private money. What we know as well from last week at Glasgow, is there are trillions of private money. It's interesting, the focus on the 100 billion. Well, we showed up with more than 100 trillion, 1000 times more than that. And it just underscores. Look, the public sector's got to play a role, but the private sector's going to decide whether or not we get to where we need to go.
Josh King:
You and I were originally scheduled to talk right before the conference opened, to do a scene set. In many ways, I think it's better for our listeners to hear your postmortem. So I'm glad we're talking now. But as we were counting down the days, your hours were getting short Mark. And I've listened to a lot of your interviews, I've read a lot of your history. I know that it's not hard for you to run out the door and squeeze in a quick 10 mile run, just to clear your head.
Josh King:
But I'm curious if you just want to bring us into your office and your thinking in the final five days, counting down, and then how it transpired for you. And whether you sort of maintain the right equilibrium and managed to hold it all together as everyone convened.
Mark Carney:
Yeah. I would like to think I held it together, but there's a lot of constituencies in COP. When they say the parties, they mean the parties with multiple Ss at the end. And I think you nailed it at the start Josh, when you were saying just the importance of the private sector in this COP and how it's stepped up in the financial sector.
Mark Carney:
But that's a hugely complex, diverse global group. And all of whom deserve attention when they're making big decisions about whether, or not to make these commitments. We had a lot of momentum coming right into Glasgow as we hoped we would, but it meant a lot of conversations, sort of 24/7 with institutions around the world.
Mark Carney:
Then on top of that, you're getting the theater if you will, of the G20 and translating some momentum out of Rome, into backing the, ISSB, the various other plumbing type issues that come with it. And then on top of that, you get the layer in real time of civil society that's there, that is skeptical of all of this and part of their role to be skeptical of it and engage on that. And so if you're asking about whether I got to run in, I did get runs in, in the park by Glasgow University, which was a nice balance.
Josh King:
I mean, the world watched you closely Mark at your time, in Ottawa and then in London, but now you are really very much in a different role, but really entering the world stage and going to stay there, as this issue is only going to get hotter as it were. So let's switch gears a little bit, just so our listeners understand the person putting together this $130 trillion deal and working with all these, both private sector and leaders.
Josh King:
Initially, you wanted to study Marine Biology, but you ended up studying Economics at a school across the dirty water of the Charles River for my hometown in Boston. Both of those disciplines Mark, I suppose, are central to climate change conversations. But who inspired you more as a kid, Jacques Cousteau, or John Maynard Keynes?
Mark Carney:
That's fantastic question. That's great research as well. I did watch the Calypso you're right. And look, I grew up in the Prairie, so it was kind of unlikely I was going to be a Marine Biologist and ended up more likely to be an Economist. So yeah, definitely more inspired by Cousteau, but then as I got older and thought about the world and how the world works, I wanted to understand how the world works. And then of course, how you can make the world better. And you can make it better through finance and economics.
Mark Carney:
I mean, those are some of the greatest levers. You can make it a lot worse through those as well of course. Things always look clearer in retrospect, than they are at the time. But really at this intersection of the private sector and public sector throughout when I was at Goldman, I did a lot with countries. And then obviously, in the public sector, I've tended to work, to help ensure that markets are providing the solutions that people want.
Mark Carney:
Sometimes that's big numbers, but a lot of time again, as you guys know, it's about getting the plumbing and the infrastructure right and aligning incentives, so a lot of smart people and some dumb ones too, but a lot of smart people, can make a series of decisions, make a market and move us forward.
Josh King:
That little place on the Prairie Mark, Fort Smith. Town of 2,500 people at its best in the Northwest territories of Canada. I looked on the map sandwiched between Lake Athabasca and the Great Slave Lake. The motto of the town, perseverance. Appropriate for region where York boats needed portages to allow the Hudson's Bay company to bypass all those rapids. What were the portages you needed to get from that place in the Prairie, the Slave River valley to the Charles River basin?
Mark Carney:
Look, I was very fortunate, I guess, in a couple respects. One, I had parents who cared about education. They were teachers, so that was kind of in the blood. I was lucky that I was a good enough hockey player, that I was of mild interest to the Crimson, but not good enough to actually spend much time playing hockey when I was there.
Josh King:
No bean pot tournament for you?
Mark Carney:
I was a goalie. I was a backup goalie. So I opened the gate for a lot of very talented hockey players, including a guy who ended up winning the Stanley Cup, is GM of the Bruins, Pete Chiarelli, my roommate so. And of course, in a place that also looks for diversity in their student body. So anyways, I was lucky to go there. I'd be hard pressed to say, I didn't come from privilege, but I'd be hard pressed to say that I had these insurmountable rapids that I had to get around to get to where I went.
Josh King:
Mark, those years at Goldman, during the Bob Rubin and Hank Paulson eras, both future secretaries of the Treasury. What did you learn from them at the firm? And what have you carried with them into some of your other roles?
Mark Carney:
Well, I think there's a couple things I learned at Goldman. And one was, and it made an impression of me very early on. I was an analyst, I needed to get ahold of Bob Rubin for something that was an issue around credit. He doesn't know me and [inaudible 00:29:08] Collin and he's back in within a few hours, he gets back to me. And it was true virtually everybody you'd get a ... There was a sense of responsibility. You're part of something bigger. You always reciprocated, or at least that was my experience. So that sense of teamwork was very strong.
Mark Carney:
With Hank, we worked a little more closely with. Had more a little more interaction. I know Bob now better than I did then. I mean, Hank is, he's relentless, he's focused, he understands the purpose, he was always very client focused, so outcome focused, and absolutely relentless, and ambitious, ambitious for his clients. Obviously, he was ambitious when he was Treasury Secretary. He's ambitious now with what he's doing on the investing side with TPG. That teaches you a lesson.
Mark Carney:
If I can bring it into the climate space, when we sat down, started 2020 and said, "Well, what do we want to accomplish for Glasgow?" We thought, "Well, we want to have a system, where climate change is one of the determinants of value, just like credit is in technology. And what do we need to do that?" So have a big goal, work on the plumbing of that, and try to galvanize people towards it. And of course, you can only do that with a team, and you can only do that by maintaining a focus. And I think both of those elements, I took from those individuals.
Josh King:
Mark, the New York Stock Exchange recently announced a partnership with the Intrinsic Exchange Group, the goal really to create a new type of investment that they call Natural Asset Companies, or NACs, which can help price the maintenance of certain natural ecosystems. Can you give us your thoughts on how natural capital is, or could, would be, or should be valued?
Mark Carney:
Let me give one other thing in terms of the context of Glasgow and I'll answer that. Which is that, we've been on this journey since Paris, that's taken a bit longer than it should have, but to get to this focus on net-zero transition one and a half degrees. And the hard numbers of finance that we can all understand. And now the system's going to go optimize it towards that.
Mark Carney:
But in parallel, you got to think about nature and biodiversity. And you also have to think about obviously communities and the nature of the transition. So net-zero and the transition, these are hard numbers. It's what are your emissions? Are they going down? If they're going down, by how much? Et cetera. It is more challenging to value nature, natural capital and assets. Now, part of that can be valued through those carbon offset markets that we were talking about earlier. A lot of it's around reforestation and biodiversity. So there's some value there.
Mark Carney:
Part of it can be valued. And this is work that Hank and his Institute have done around what are called Ecosystem Services. So what's the value of the, think about bees and pollinators and their value for crops and you can estimate those values. How you crystallize and capitalize that value is another question, which part of what the NACs, I think do. In the end part of what nature has to be valued on, is on its own terms.
Mark Carney:
There's value of nature for reducing carbon. There's value of nature in agriculture and other economic processes, and we capitalize. And then there's value of nature, which is the quest value effectively. We grow up with nature, we experience it. And if we don't pass it on, then we've undercut future generations.
Mark Carney:
Now, how you price that, is a challenge. You're never going to be able to fully price it and fully realize it. Vehicles that look at that more closely, track nature on its own terms, can help impute some value, some price. And what I would say again, just going back to the direction of travel. Look, we have run down on various estimates, our natural capital by about 40% over the course of the last three decades or so. Well, we've built up a lot of physical capital and a bit of human capital. And we got to turn that around.
Mark Carney:
And so this general idea for those who haven't fallen, maybe quite as closely of net-zero and nature positive. So moving to a world where we're moving to net-zero, but we're actually adding back to nature, adding back to biodiversity. And there will be value around it. The only point I'd make, is it's hard for it to be fully valued, but that's true of many things in life. That you don't crystallize everything in a monetary value.
Josh King:
Talking about value Mark, one of the things that you worked on during your transition from public servant, to bank of England, to the private sector at Brookfield Asset Management, and your role with the UN, was to write this book, Values, Building a Better World for All. The manuscript came in at about 608 pages, examining the challenges that exist, and the need for radical change to fix it. What spurred you to sit in front of your computer and work on 608 pages, when you could have been doing other things? And what did you learn from that process?
Mark Carney:
Part of what spurred me Josh, was my time as a Governor, was in many respects, a series of crises. I started in the financial crisis. I ended with at the start of the COVID crisis. In between I had the Euro crisis Brexit, which some respects a crisis and this sort of building climate crisis. And so I was asking myself a question of, "Okay, well, what is there a common element to this? And if so, what are they in common lessons for how to address it as a leader of an organization, or as an investor, or indeed as a policymaker as a country?"
Mark Carney:
So that was the task I set myself. And what I learned around it, one of the core elements I picked up, was really crystallized, is this point that as a society, if we really value something, instead of trading it off, if we get to the point where health is valued and we're going to organize ourselves to sort out COVID, which is what the U.S. and others did from a medical perspective, in terms of the vaccines and others, the market just drives helps drive that solution.
Mark Carney:
What we've got to finally I think, as a point on climate, is this broad consensus, it's not absolutely everybody, but broad consensus and understanding we need to get to net-zero. Well, once you decide that, once we decide that and we recognize that this is addressing what's a enormous, if not existential risk, then whatever's a solution to that, creates a lot of values.
Mark Carney:
So it's the values of society what we care about. Could be biodiversity nature, could be climate, could be greater equality. And then the value in the market, is determined in that In many respects, that's the playbook we've been applying for Glasgow, which is that given this task of getting to net-zero, well, how do we organize the market, so that it's part of the solution?
Mark Carney:
And candidly and I'm upfront about this, that it turns this risk into an enormous commercial opportunit.y and that's what's necessary. That's what's necessary to move forward. And you're already seeing a lot of people moving on that opportunity. And that's what gives me optimism. We're going to get to where we need to go
Josh King:
On the topic of commercial opportunities Mark, you've said that Peter Weir's Gallipoli is your favorite film and his 1982 follow up to that, The Year of Living Dangerously is one of mine. But Weir's least commercial success came four years later with the Mosquito Coast, which is oddly prescient as Harrison Ford's Allie Fox, goes off the grid in a South American rainforest, in an effort to rebuild civilization that he thinks is heading off the industrialized and consumerized precipice. At the end of the day, seeing what you saw in Glasgow in COP26, are you hopeful that we can step back from the cliff that Allie Fox feared? How do we do that?
Mark Carney:
If we weren't taking this seriously, if we didn't have the best minds now in finance and in business focused on this, I'd be very worried. We've left this very light. I may be sounding more optimistic. One of the things that continues to hit me, is that the science on climate change and the extreme weather events, they're actually moving against us. In other words, we used to think that three degrees, I mean, 25 years ago, wasn't great, but it was fine.
Mark Carney:
Now, we're realizing actually there's a big difference between one and a half and two degrees, even though we're coming very close to one and a half. And so that gives me pause and concern. What gives me more optimism, is just the breadth of people who are now focusing on it. By the way, Harrison Ford cares a lot about this issue as you know and has helped put it on the map. But yeah, we need more than the Raiders of the Lost Ark version of Harrison Ford, in order to get where we need to go.
Josh King:
Another person who cares a lot about this issue, is Pope Francis. Mark, you had lunch with him and he turned to you and said, using an extended metaphor where wine symbolized humanity and grappa symbolized the market for self-interest. He said, "Your job is to turn the grappa into wine and turn the market back into humanity." You did that in Glasgow and I'm sure you're going to be doing it in the months and years ahead, both in the public sector in your UN role and at Brookfield Asset Management. Thanks so much for taking out a little time to tell us how COP26 went and spending some time with us Inside the ICE House.
Mark Carney:
Well, fantastic. I really enjoyed it Josh.
Josh King:
That's our conversation for this week. Our guest was Mark Carney, former Governor of the Bank of England and the UN Special Envoy on Climate Action and Finance. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment, or a question, you'd like one of our experts to tackle on a future show, email us at [email protected], or tweet at us @ICEHousePodcast.
Josh King:
Our show is produced by Weronika Slomka, Brooklyn McLaughlin, Brian Matt and production assistance from Stephan Caprile, Pete Asch and Ian Wolf. I'm Josh King, your host signing off from the library of the New York Stock Exchange. Thanks for listening. We will talk to you next week.
Speaker 1:
Information contained in this podcast, was obtained in part from publicly available sources and not independently verified. Neither ICE, nor it's affiliates, make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor approve or endorse any of the content here in.
Speaker 1:
All of which is presented solely for informational and educational purposes, nothing here in constitutes and offered to sell. A solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some potions of the preceding conversation, may have been edited for the purpose of [inaudible 00:39:04] clarity.