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Mark Carney: Credible net-zero plans crucial for future financing

Imperial College London

The Imperial College Business School in South Kensington is home to the new Leonardo Centre on Business for Society.

 

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Former Bank of England Governor Mark Carney has urged businesses to establish credible net-zero strategies, warning that firms that fail to do so could struggle to secure future investment from banks and investors and risk alienating the consumers that will ensure their future profitability.

In prepared remarks for a speech last week to mark the launch of Imperial College Business School's Leonardo Centre for Business for Society, the financier warned that investors and banks are set to increasingly distance themselves from companies that do not demonstrate a "credible intention" to transition towards more sustainable business practices.

"Investors, banks and indeed society will increasingly differentiate between companies that meet this gold standard and those that do not," Carney said in his prepared remarks. "That means backing companies with credible plans with the necessary finance to turn plans into action; and divesting those who don't demonstrate credible intention to transition."

Addressing business leaders virtually, Carney stressed that "not all transition plans" are created equal and as such stressed the need for companies to develop climate plans rooted in science and take responsibility for both operational and power-related emissions, as well as supply chain emissions "where appropriate." Net-zero plans also should include interim emissions targets and be integrated into board-level governance processes, he added.

Not having a corporate net-zero plan is not an option for companies eyeing a long-term future, Carney warned in his comments.

Investors, banks and indeed society will increasingly differentiate between companies that meet this gold standard and those that do not.

"In my view, given that net zero is both an imperative of climate physics and on the road to becoming the law of the land in over 120 countries, any business strategy must be grounded in a plan to support the transition to net zero," Carney added in his prepared remarks. "And to attract the finance needed to transform their business models, companies will need to set net-zero targets and devise plans for how they adapt their business models for a low emission world."

In his remarks, Carney also emphasized that firms must embrace a stakeholder-orientated model of business that engages employees, suppliers, customers and communities, as well as its shareholders, as they work to tackle global challenges.

"A company exists to solve problems for people and planet," he wrote. "A purposeful company defines and enshrines this mission. It creates a strategy to deliver that purpose. It makes corporate decisions — from hiring to R&D spend — based on furthering that purpose. And it aligns incentives around that purpose."

In his remarks, the former Bank of England governor also noted that one priority for the upcoming COP26 Climate Summit in Glasgow is to create a financial system that properly takes climate risks into account, arguing this shift will involve new market structures and "be built on the three 'Rs'" of risk management, reporting and returns.

"Across all these pillars we need to build expertise and experience, test efficacy and collectively upskill," Carney said in his remarks. "We need to share knowledge and coordinate as time is short to prevent a full-scale climate crisis. "

The Leonardo Centre, based at Imperial Business School's campus in central London, will focus on five areas relating to sustainable business: corporate purpose and governance; leadership and culture; business model innovation; corporate and functional strategies; and control and incentive systems.

Carney's appeal came the same week as COP26 President Alok Sharma similarly urged business leaders across the world to establish net-zero strategies, emphasizing robust transition plans would be "good for their bottom line." It also comes as the United Nations-backed Race to Zero campaign, which brings together governments, public and private sector organizations that have published net-zero plans, celebrated its one-year anniversary by confirming that over 4,500 non-state actors from across the global economy, including many of the world's largest businesses and investors, have signed up to the initiative by committing to halve their emissions by 2030 on a path to delivering net-zero emissions by 2050.

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