“The catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors. It will impose costs on future generations that the current one has little direct incentive to fix… Once climate change becomes a defining issue for financial stability, it may already be too late.”
That is a quote from Mark Carney in 2015, then the governor of the Bank of England and chair of the Financial Stability Board (FSB), and now the prime minister of Canada. He was talking to UK insurers about what he called the Tragedy of the Horizon, which was the idea that most financial actors operate in short time horizons and this gives them little reason to act on climate change without being encouraged or cajoled to do so.
A decade later, it would appear that Carney’s warning is coming true. According to a Bloomberg News report on the June 11th meeting of the FSB, the US Treasury’s interim undersecretary for international affairs, Michael Kaplan, stated that proof of an imminent financial stability risk would be the only reason for climate to become a focus for the Treasury. Lisa Sachs, head of Columbia University’s Center on Sustainable Investment, commented on the disagreement at the FSB, saying that “The US Treasury is probably right that climate-related financial stability risks are unlikely to be imminent, but that narrow accuracy underscores the perversity of the discourse: by the time climate risk are imminent for financial markets, it will be far too late to avert catastrophic planetary and economic consequences”.
Sachs’s comments echo those of Carney 10 years ago. Michael Sheren, former senior advisor at the Bank of England, believes that the time period following Carney’s speech until the COP26 climate summit in 2021 was when structures should have been put in place to incentivize or compel investors and companies to act in the collective interest, as it was a time of peak enthusiasm for climate action. He said “We should have locked down mandatory climate risk reporting and disclosure and moved quickly to put in place incentives, both carrots and sticks, to drive real economy decarbonization while the wind was still at our back”, and he believes forcing change today will be a lot harder.
If you would like to see Carney’s full speech, you can find it here.