Investors are set to benefit as most companies are forced to readjust their strategies, and consider how they will achieve net-zero emissions post-COVID-19, UN climate change envoy Mark Carney told listeners at the virtual British Pvt. Equity and Venture Capital Association Ltd. summit on Oct. 8.
Carney, who is the U.K.'s finance adviser to COP26, the next UN Climate Change Conference to be held in Glasgow in 2021, said countries' pledge to get to net zero emissions is a great opportunity. "Society has set the objective. Capitalism then says, 'OK, you've got an issue, you've got an objective, we'll find you the solution.'"
Investments in companies that are lagging on climate change and emissions, but have a strategy that a private equity firm believes in, are value creation opportunities, Carney said. New technologies will also be part of the solution and create investment opportunity.
It’s not just about "having a portfolio that is all windmills, or just renewables, or just purely green assets," Carney said. There's also opportunity to invest in companies that help other businesses to "where we ultimately need to get to."
"We want to have an ability to show those dynamics — what proportion of assets are part of the transition? What proportion are lagging? And there's various ways to do that. It's as simple as changing carbon footprint, it could be about proportion or transition plans, or it could be actually calculating, as many do, a sort of portfolio warming element of that transition. So do I have a two-degree portfolio, two-and-a-half, or three-degree portfolio?"
Carney said he is working with the industry to develop techniques and useful ways of framing climate measurements.
Unlike during the global financial crisis, many businesses must reshape their strategies at a time of social reset. "People have had a chance to step back and look and say, 'Where do we want the economy to head? What would we want to achieve?'" Carney said. Climate change is a central question for companies considering how they move forward, he added. "Whether it's in Canada, where I'm speaking from, whether it be the U.K. or 120 other countries around the world, there's expressly net zero targets for the country."
While Carney was Governor of the Bank of England, a role he held between 2013 and 2020, the central bank identified climate risk as one of the big risks to the financial system and the economy in the future. It is "not just the physical manifestations of climate change that the insurance industry principally has to manage," Carney said, but the risk and, on the flip side, the opportunities, of getting to net zero emissions. This means "making sure that the financial sector has the information, the tools, the experience, expertise and the orientation to seize those opportunities and manage those risks along the way."