Speaker 1: Hi, This is Dana Perkins and you're listening to Switched
Speaker 1: on the bienn F podcast. So this is the first
Speaker 1: of a series of special episodes that will be interspersing
Speaker 1: with our regular episodes. They'll be external guests that were
Speaker 1: actually interviewed at one of our recent bienny F summits.
Speaker 1: BENNF hosts a series of summits around the world each
Speaker 1: year and we bring together key decision makers in the
Speaker 1: energy transition and we talk through some of the key
Speaker 1: issues facing the transition and decarbonization. Our summit in New
Speaker 1: York City took place in April earlier this year, and
Speaker 1: this episode includes an interview conducted by my colleague Ethan Zindler,
Speaker 1: whose head of America's for bien EF. He was privileged
Speaker 1: to sit down with none other than Mark Karney, you
Speaker 1: un Special Envoy for Climate Action and Finance and chair
Speaker 1: of the Glasgow Financial Alliance for Net Zero or g
Speaker 1: FANS for short. He's the author of the book Values
Speaker 1: and previously Governor of the Bank of England from twenty
Speaker 1: as well as Governor of the Bank of Canada from
Speaker 1: two thousand eight to twenty ROUTEAM. Among the topics they
Speaker 1: discussed was the role and importance of corporate disclosure as
Speaker 1: it relates to climate. Please note that BNF does not
Speaker 1: provide investment or strategy advice, and we have a full
Speaker 1: disclaimer at the end of the show. If you get
Speaker 1: to the end of this episode and you like what
Speaker 1: you hear, don't forget to hit subscribe to switch it
Speaker 1: on on whatever your player you're listening to us on.
Speaker 1: Now let's hear Ethan's interview with Mark Karney. Mark, thank
Speaker 1: you for joining us, and it's nice to see you
Speaker 1: probably a few feet from my office in Washington, p C.
Speaker 1: Thanks for joining us from the bureau down there, so
Speaker 1: we're really pleased that you're able to join us and
Speaker 1: take part in our conversation. Where one year we'll give
Speaker 1: or take a few weeks since the announcement of g fans,
Speaker 1: maybe give us a status update on where it stands
Speaker 1: today and what its ambitions are for the balance of
Speaker 1: the year. First off, thank you for having me Ethan,
Speaker 1: and your office is in good shape. I'm checking it out.
Speaker 1: Look In terms of g fens, you know, over the
Speaker 1: course of the last year, we've obviously grown the tremendously
Speaker 1: in terms of the number of member firms, and the
Speaker 1: assets so that they control importantly, and it's not headline news,
Speaker 1: but it's necessary to ensure that it can be as
Speaker 1: effective as possible. We've really built out the core team
Speaker 1: in de fans, from the private sector, from the public sector,
Speaker 1: the stakeholder groups, built out the advisory panel under Billy
Speaker 1: Gilbert's that leadership, but huge additions to leadership with Mike
Speaker 1: Bloomberg is co chair and and Mary Shapiro's vice chair
Speaker 1: and all their expertise and energy that they brought. And
Speaker 1: we're in the process of expanding its global footprint and
Speaker 1: you know, watch this space over the course of the
Speaker 1: next few months for more announcements on that. But at
Speaker 1: the core of what we've been doing obviously securing members
Speaker 1: and having their core net zero commitments, what we've been
Speaker 1: doing is is having hundreds of people from those member
Speaker 1: firms working on a series of initiatives around what is
Speaker 1: best practice for implementing net zero commitments, So UH net
Speaker 1: zero implementation plans for financial institutions that consistent standard across
Speaker 1: financial institutions. A draft consultation on that will come out
Speaker 1: in the next six weeks. How do we bring consensus
Speaker 1: around sectoral pathways the pathways towards net zero in key
Speaker 1: high emitting sectors, whether it's steel, transportation, oil and gas,
Speaker 1: and others. What is best practice for company net zero plans?
Speaker 1: In other words, what is the financial institution financial industry
Speaker 1: expect from companies for decision useful information so that we
Speaker 1: can get capital to go to where the emissions are
Speaker 1: and get those emissions down again. A consultation will come
Speaker 1: out and that in the course of the next two months,
Speaker 1: and in very important to other elements of that, and
Speaker 1: I'll stop here after these. Even working on the approach
Speaker 1: to managing the phase out of stranded assets, we need
Speaker 1: a responsible and transparent framework to do that so that
Speaker 1: the so called industries that are high emitting energy sources
Speaker 1: that are causing climate change that can be responsibly managed
Speaker 1: down and truly be part of the transition. And then
Speaker 1: the last thing I really want to underscore, because it's critical,
Speaker 1: is a tremendous amount of work is being done to
Speaker 1: help mobilize capital at scale to the emerging and developing
Speaker 1: world where most of the emissions are today and where
Speaker 1: the challenges for just transition and secure sustainable energy transition
Speaker 1: are the greatest. So thanks for that over here. That's
Speaker 1: very helpful. You know, I was in treatuing when g
Speaker 1: FANS got. One of the major announcements around g FANS
Speaker 1: was at at Glasgow, of course, and you know, the
Speaker 1: discussion out of a hundred and thirty trillion dollars of
Speaker 1: total assets among all these four fifty institutions that are involved.
Speaker 1: And yet surprisingly to me somewhat, you know, the the
Speaker 1: initiative has generated some pushback and some complaints from environmental
Speaker 1: groups that not all the commitments are sort of ironclad,
Speaker 1: not all the organizations have made the same level of commitments.
Speaker 1: How would you respond to some of the criticism that
Speaker 1: the initiatives received you in that regard, Well, look, the
Speaker 1: first thing is that we wealth welcome scrutiny and and
Speaker 1: welcome the high expectations. The world has been on track
Speaker 1: for a climate catastrophe. The world has been you know,
Speaker 1: government policy, company investment, and financial institutions have been funding
Speaker 1: the world that was headed towards above three degrees. Now
Speaker 1: we started to turn with the ambitions at Glasgow by
Speaker 1: countries in the Glasgow Climate Pact of now covering of
Speaker 1: global emissions with net zero objectives were starting to turn
Speaker 1: with leaders in industry with their initiatives and the core
Speaker 1: of the financial system that number dred trillion ist of
Speaker 1: global financial assets as you know, and those assets turn over,
Speaker 1: and the key is as those assets turn over, as
Speaker 1: loans mature, as investment decisions are made, that all of
Speaker 1: those decisions take climate change and the net zero transition
Speaker 1: into account, that they do so transparent and so that
Speaker 1: all stakeholders can judge and see who is funding the
Speaker 1: solutions and who is still part of the now just
Speaker 1: by adjoining DEFENS, making the commitments committing to the transparency. Remember,
Speaker 1: there will be annual reporting of all DEFENS members of
Speaker 1: their emissions, of their portfolio companies Scope one, Scope too,
Speaker 1: and Scope three emissions where material and you know, one
Speaker 1: thing finance can do is count and we'll be able
Speaker 1: to see, as I say, who's part of that solution
Speaker 1: and all of that work I mentioned in the ends
Speaker 1: in response to your first question is is to bring
Speaker 1: in a discipline, rigorous, consistent approach to implementing those commitments.
Speaker 1: So thanks for that clarification, and certainly look forward to
Speaker 1: the counting the disclosure. I think Scope three strikes me
Speaker 1: as the real challenge and in many of these cases
Speaker 1: since I've got you, we're gonna shift topics a little
Speaker 1: bit and want to get your view on the macroeconomic
Speaker 1: picture within the context of energy of course as well.
Speaker 1: I mean, one of the things we've talked a lot
Speaker 1: about has been how much the entire macro economic situation
Speaker 1: has changed so dramatically in the last two months to
Speaker 1: the conflict in Ukraine. We just wanted to get your
Speaker 1: thoughts on on really, how does the energy transition fit
Speaker 1: within the current picture. You know, the reaction we've seen
Speaker 1: from Washington has been to release more oil from the
Speaker 1: strategic Petroleum Reserve, loosen standards around ethanol temporarily, and and
Speaker 1: now there's also going to be additional drilling. Do you
Speaker 1: think these are the appropriate responses? And how does it
Speaker 1: this fit within a grander challenge that we have now
Speaker 1: of addressing climate change? Well, let me let me go
Speaker 1: to the grander challenge, since we're talking macro and and
Speaker 1: and within that the energy transition. I think the first
Speaker 1: thing to say is that the horrible events and that
Speaker 1: Russia's uh in a horrific convasion of Ukraine has added
Speaker 1: an additional layer and additional challenge. But the macro environment
Speaker 1: was shifting. Before that, we're moving to a world of
Speaker 1: quite significant supply constraints, supply adjustments. These were much broader
Speaker 1: than short term. Part of that has to do with
Speaker 1: the nature of global integration and the reversal of many
Speaker 1: elements of that. Of course, that has been reinforced by
Speaker 1: recent events. It also has to do with the with
Speaker 1: the energy transition, and I think the way i'd look
Speaker 1: at the specifics of the energy transition, the consequence of
Speaker 1: Russia's invasion and the reaction to it, I divided into
Speaker 1: the near term, medium and longer term. In the near term,
Speaker 1: it's not good news for the energy transition. It's not
Speaker 1: good news for our climate objectives. There will be more
Speaker 1: emissions as a consequence of this war is a consequence
Speaker 1: of short term scramble for energy, energy sources that are
Speaker 1: available and readily available now, I think is a fact.
Speaker 1: And you know climate physics that doesn't ask why carbon
Speaker 1: has been put in the atmosphere. It just subtracts it
Speaker 1: from the carbon budget. So it makes our challenge more difficult.
Speaker 1: That's first point. In the second is that the response
Speaker 1: to it, the medium term response for material shifts in
Speaker 1: energy mixes in countries it takes three to five years
Speaker 1: to really move the needle. And with that horizon, the
Speaker 1: judgment about which energy sources to the elop which to accelerate,
Speaker 1: which to use as bridges. Clean energy performs exceptionally well
Speaker 1: with relative to conventional energy. There will be a need
Speaker 1: for additional fossil fuels, and I'll come back to that.
Speaker 1: But to be clear, clean energy it's not just sustainable
Speaker 1: or cost effective, it's also secure once it's built. No
Speaker 1: one owns the the sun and the wind, and hydrogen
Speaker 1: is literally everywhere if you're producing green hydrogen. So you
Speaker 1: see this tripling of ambition in Europe, in the UK,
Speaker 1: the up of ambition in Canada's emission reduction plan that
Speaker 1: was put out two weeks ago, and I think we'll
Speaker 1: see more of that because the raw economics the realities
Speaker 1: of energy security overlap exceptionally well with the needs of sustainability. Now,
Speaker 1: the medium and longer term point about bridging what is
Speaker 1: also required from this and and the dictates of energy
Speaker 1: security will mean that there will be in my judgment,
Speaker 1: more stranded assets. I mean, we all are familiar with
Speaker 1: the geological drivers of the stranded assets. Geology meets climate physics.
Speaker 1: But what I mean is that there will be more
Speaker 1: energy sources developed that are for purposes of energy security.
Speaker 1: They will make other energy sources redundant in the fullness
Speaker 1: of time if we are going to hold to our
Speaker 1: climate objectives. That changes the economics of those new developments again,
Speaker 1: and it reinforces the drive on on clean energy. So
Speaker 1: challenges in the short term, we need to be disciplined
Speaker 1: about what we do in the longer term, and to
Speaker 1: loop it back into gfans, we need a financial sector
Speaker 1: which is laser focused on the transition and that can
Speaker 1: responsibly finance those investments, particularly in the emerging and developing world,
Speaker 1: that are necessary to get us through this period well
Speaker 1: accelerating the investment in clean energy. Now for a very
Speaker 1: short break, stay with us. So I hear you right?
Speaker 1: Are we running some risk though? I mean you mentioned
Speaker 1: a three to five year time arising around the build
Speaker 1: out of large energy infrastructure, which totally makes sense. But
Speaker 1: you know, Europe is staring at a winter coming next
Speaker 1: year where they either of they'll attempt to completely wean
Speaker 1: themselves off of Russia or simply dramatically reduce that reliance.
Speaker 1: How do those timelines sync up? That seems like a
Speaker 1: real fundamental challenge. It is a fundamental challenge, and that
Speaker 1: Europe is doing its best to to bridge, partly through
Speaker 1: spot gasts wherever they can find it, partly through very
Speaker 1: high emitting sources I reference to coal, partly through a
Speaker 1: potentially demand management which is part of their plan some
Speaker 1: near term acceleration on the clean energy, but it's limited
Speaker 1: in that time horizon, so there are big challenges. And
Speaker 1: one element, as you know, that has not been put
Speaker 1: on the table has been the restarting of of nuclear facilities,
Speaker 1: which could play a role here. But it's yes, it
Speaker 1: is a challenge, and it's one of the reasons I
Speaker 1: said in the short term that you know, this is
Speaker 1: not positive new I mean clearly it's not in any
Speaker 1: such stretch of the imagination to start with the humanitarian
Speaker 1: but from a climate perspective, it will use up more
Speaker 1: as the carbon budget. It does strike me that it
Speaker 1: requires policymakers to take both a short term and long
Speaker 1: term view simultaneous, which isn't always the best thing. That yeah,
Speaker 1: can I just re emphasize this point though, you said,
Speaker 1: because whether you're building a new Elergy train, whether you're
Speaker 1: accelerating hydrogen, whether you're building major offshore, when whether you
Speaker 1: have nuclear as part of your consideration. These are the
Speaker 1: time horizons three five years, and look at the economics
Speaker 1: of that as a policy maker, look at the overlap
Speaker 1: between energy security and sustainability, which is virtually total once
Speaker 1: that these facilities are built. And you know, this is
Speaker 1: a horrible situation to be in, but it concentrates the
Speaker 1: mind and I'll just underscore it. Particularly for Europe the
Speaker 1: finances there. We've got huge balance sheets looking for these
Speaker 1: transition investments and we've seen and I want to I
Speaker 1: want to give credit to the European Union in the
Speaker 1: Member States. Thus far, the response has been ambitious and
Speaker 1: more needs to be done, but it's headed in the
Speaker 1: right direction. Thanks for that. Can we world shift gears
Speaker 1: for just for one last segment of questions here you're
Speaker 1: in Washington, of course, the Securities Exchange Commission the other
Speaker 1: day issued a fairly comprehensive bit of rulemaking around requiring
Speaker 1: companies to disclose their CEO two emission profiles and the
Speaker 1: risk their climate risks. Essentially. First, my understanding is to
Speaker 1: some degree this is based on the Task Force for
Speaker 1: Climate Disclosure Framework, which you worked on as well as
Speaker 1: Mary Shapiro and others. So congratulations on that. But second,
Speaker 1: we're in the comment period officially for that for that rule,
Speaker 1: would I would like your comment. What do you think
Speaker 1: of that? Well, I look, it's it's hugely welcome that
Speaker 1: the SEC has done this. It is a and they
Speaker 1: put out this proposed standard after a very comprehensive and
Speaker 1: detailed analysis, and they've had the benefit of learning from
Speaker 1: the experience of the TCFD, which you reference, learning from
Speaker 1: what's been done in other jurisdictions, responding to very very
Speaker 1: significant demand for investors in the United States. Financial institutions
Speaker 1: in the United States, many of whom disclosed on the
Speaker 1: basis of the TCFD. But what they really want is
Speaker 1: this disclosure from the companies in which they invest and
Speaker 1: to which they lend. You know, there's twenty eight trillion
Speaker 1: dollars of balance sheet that supports the TCFD. The SEC
Speaker 1: is has taken it to another level in terms of
Speaker 1: the quality and the rigor, and keyword that I think
Speaker 1: they really live by is decision useful. What they're putting
Speaker 1: in this standard is what investors want, and it's not
Speaker 1: just about what they want to manage the risks, although
Speaker 1: those risks are pretty significant, but it's to seize the
Speaker 1: opportunities that come with the transition, recognizing that this is
Speaker 1: a top strategic priority for most companies in America, most
Speaker 1: companies around the world, which is to get their emissions
Speaker 1: down and be carbon competitive, and events of the last
Speaker 1: two months have only reinforced that, so very much welcome it.
Speaker 1: The last point I'd make is that the SEC, while
Speaker 1: showing leadership, is being joined with a difference, you know,
Speaker 1: a different version of a similar objective through something called
Speaker 1: the I S S B, which will cover ultimately over
Speaker 1: a hundred and thirty countries other than the United States,
Speaker 1: including the rest of the G seven and G twenty.
Speaker 1: The push back, it seems that it's been on the
Speaker 1: SEC rule and and there's been different types, but one
Speaker 1: of them has been that, you know, we have something
Speaker 1: called the Environmental Protection Agency and that's their job is
Speaker 1: to worry about zotomissions and it's not not the SEC's job.
Speaker 1: So I wonder if your take on that, well, that's
Speaker 1: not I mean, that's nonsense, absolutely nonsense. This is this
Speaker 1: is disclosure for financial institutions. Financial institutions want this information,
Speaker 1: so that they can manage risks, sees, opportunities, differentiate between
Speaker 1: companies that have a strategy to address these issues and
Speaker 1: companies that don't. And if the company doesn't, then of
Speaker 1: course the lender, the investor in them, they want to
Speaker 1: make a judgment of whether management has made the right call,
Speaker 1: and that you need disclosure in order to make those judgments.
Speaker 1: You don't make it on an inference. And you know,
Speaker 1: corporate disclosure. That's like saying the the telecom regulator, the SEC,
Speaker 1: should regulate a corporate disclosure for all tech companies and
Speaker 1: telephone companies. No, the SECS job is material corporate disclosure.
Speaker 1: It's a job that constantly involves what is material evolves
Speaker 1: as the U S economy evolves, and as climate comes in,
Speaker 1: climate management and transition and the energy security issues come
Speaker 1: center stage. You know, the system has been lacking comprehensive
Speaker 1: comparable disclosure in the SEC is right and the moved
Speaker 1: to address this, and you rightly point out that a
Speaker 1: number of companies have embraced us, but certainly many others
Speaker 1: have not. Does this require essentially a cultural change and
Speaker 1: a number of corporations to assuming this rule does go
Speaker 1: into effect, which it looks like it's it's in line
Speaker 1: to do. First off, if a company doesn't see this
Speaker 1: as a major issue, their view is that both the
Speaker 1: physical risk from climate change, the regulatory risks around it,
Speaker 1: the competitiveness issues around having a high carbon footprint or
Speaker 1: a higher carbon footprint relative to other companies in their industry.
Speaker 1: If they don't think that that's important, that you know,
Speaker 1: they disclose that, and they disclose it in away, and
Speaker 1: then their investors and lenders make the judgment. That's the
Speaker 1: way the capital markets work. What I think you've flipped
Speaker 1: this around, though, which is what do the investors and
Speaker 1: the lenders want, and that's this information. I have the
Speaker 1: honor with Mike Bloomberg of Coachair in defense and so
Speaker 1: a hundred and thirty trillion of assets in that as
Speaker 1: you know, and included in that or all the major
Speaker 1: US banks, the two largest US investors, in fact global
Speaker 1: investors in black Rock and Vanguard, both of whom supporters
Speaker 1: of this type of disclosure from the start. And I
Speaker 1: could give you many, many examples. And they need that
Speaker 1: information in a consistent way across companies to make the
Speaker 1: judgments so how to discharge ultimately their fiduciary duties to
Speaker 1: two Americans. Who's whose money they're managing? Well, listen, thank
Speaker 1: you so much for taking the time of Chael in
Speaker 1: terms of busy week, I know with the meat taking
Speaker 1: place in Washington, and really welcome your perspective on all
Speaker 1: these issues. Recovered a lot of ground in exactly twenty minutes,
Speaker 1: So thank you so much for your time. Really appreciate it.
Speaker 1: Thanks very much. Today's episode of Switched On was edited
Speaker 1: by Rex Warner of gray Stoke Media. Bloomberg any F
Speaker 1: as a service provided by Bloomberg Finance LP and its affiliates.
Speaker 1: This recording does not constitute, nor should it be construed
Speaker 1: as investment advice, investment recommendations, or recommendation as to an
Speaker 1: investment or other strategy. Bloomberg an e F should not
Speaker 1: be considered as information sufficient upon which to base an
Speaker 1: investment decision. Neither Bloomberg Finance LP nor any of its
Speaker 1: affiliates makes any representation or warranty as to the accuracy
Speaker 1: or completeness of the information contained in this recording, and
Speaker 1: any liability of this recording is expressly disclaimed.