Bank of England Governor Mark Carney took his message on climate change to Canada’s financial community Friday, but steered clear of the burning Brexit issue, only a day after his central bank issued its first interest-rate decision since the game-changing vote.
In a discussion with Canadian Environment Minister Catherine McKenna before a large audience at a Toronto Region Board of Trade event, Mr. Carney pointed to the “considerable” opportunities for the financial sector to profit from global efforts to reduce carbon emissions over the next two decades, as countries work to meet their commitments under last fall’s Paris climate agreement.
He estimated that global carbon reduction needs imply “somewhere in the order of $5- to $7-trillion a year” in clean-infrastructure investments. “The question is, how much of that is going to be financed through capital markets?”
He said that if there is a “global standard” established for green-infrastructure bonds – something the G20 is working on – it would create “a core mainstream fixed-income opportunity.” He noted that China, in particular, has large needs for such infrastructure that could generate relatively high-yielding investment products.
He also argued that a “a consistent, comparable, reliable” global system for corporate disclosure on carbon emissions would better allow equity markets to price in relative risk into company valuations. Mr. Carney has been championing such a system for much of the past year, in his dual roles as the head of the Bank of England and the chairman of the international Financial Stability Board.
“The relative value opportunity in equities is considerable,” he said.
“Having the Governor of the Bank of England here sends a very strong message that it is important that we act now, and that we have a real opportunity for Canadian business,” Ms. McKenna told reporters following the session.
The event, which was planned well before Britain’s June 23 referendum result in favour of leaving the European Union, didn’t include any discussion on the shocking vote result, or the central bank’s plans to use monetary policy to lean against the expected economic turmoil. Mr. Carney left the conference hall quickly after his public conversation with Ms. McKenna ended, and didn’t speak to media.
His Toronto appearance came only a day after the Bank of England’s monetary policy committee, in its closely watched first interest-rate decision following the Brexit vote, opted to hold its key interest rate steady at 0.5 per cent, while indicating that it does expect to ease monetary policy at its next meeting in August.
His visit to Canada also came just a day after Mr. Carney met for the first time with Britain’s new Chancellor of the Exchequer (the equivalent of finance minister), Philip Hammond, who was named on Wednesday to replace George Osborne in the new cabinet of incoming Prime Minister Theresa May. Given the fast-changing political and financial situation in Britain, there was considerable speculation that Mr. Carney might cancel his appearance.
Mr. Carney, a Canadian who was the head of the Bank of Canada before taking the top Bank of England job three years ago, told the audience that he actually came to Canada to visit his brother – but joked that an “irresistible force” convinced him to participate in the climate-change event. (Ms. McKenna’s office was instrumental in lining up Mr. Carney, according to an event official.) A Bank of England spokesman said Mr. Carney is only staying in Canada over the weekend, before heading back to London to prepare for the July 23-24 meeting of G20 central-bank heads and finance ministers in China.
“It is not necessarily surprising. It happens often that [central bank] governors need to leave to attend other events. I don’t think people [in Britain] took notice,” said London-based economist Charles St-Arnaud of Nomura Securities. “My biggest surprise is why the BoE didn’t cut yesterday and try to pre-empt as much as they can any negative impact from Brexit.”
Mr. Carney’s chief economist at the Bank of England, Andrew Haldane, gave a speech in Wales Friday that strongly argued for the bank to act “promptly as well as muscularly” to provide monetary stimulus in the face of Brexit – suggesting that the bank is working on something more substantial than just a quarter-point rate cut next month.
“I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison,” he said.
Mr. Carney announced at the Paris climate summit last December an FSB task force, led by business mogul and former New York mayor Michael Bloomberg, to develop a set of “voluntary, consistent climate-related financial risk disclosures” for companies. Mr. Carney said Friday that he expects the task force to submit its final report “at the start of next year,” in time for the G20 summit in Germany.Report Typo/Error