Bank of England Governor Mark Carney

Photography: In a recent interview, Bank of England Governor Mark Carney said CPA Canada’s support of the recommendations of the Task Force on Climate-Related disclosures is hugely important. (Peter Nicholls/WPA Pool/Getty Images )

World| Sustainability

CPA support of climate change recommendations ‘hugely important’ to achieving goals of task force, Carney says

The Bank of England Governor talks to Joy Thomas about how he defines the success of the Task Force on Climate-related Financial Disclosure, and the role accountants will play in it

“Hugely important” is how Bank of England Governor Mark Carney describes CPA Canada’s support of the recommendations of the Task Force on Climate-Related disclosures.

In a recent interview, the Governor sat down with CPA President and CEO Joy Thomas to discuss how he sees the journey towards climate change disclosures playing out and the important role the financial services sector has within it. According to Carney, CPA Canada, its members and others worldwide have an opportunity to help shape good practice.

Mark Carney, Bank of England Governor being interviewed by CPA Canada's President and CEO Joy ThomasBank of England Governor Mark Carney sat down with CPA President and CEO Joy Thomas to discuss how he sees the journey towards climate change disclosures playing out.  

Governor Carney also is chair of the Financial Stability Board (FSB), which, at the request of the G20, created a task force to develop a set of voluntary disclosures to help establish greater reporting consistency on climate change issues. The disclosures are for use by companies in providing information to investors, lenders, insurers and other stakeholders.

There are three keys to achieving success, explains Carney: Establishing recommendations, getting buy-in from the users, and putting the elements into practice.

“Delivering [the recommendations] to the Leaders’ Summit in Hamburg in 2017 … was a success,” Carney says.

“[Now] we have financial institutions that control assets in the range of US$90-trillion that support the recommendations and are looking for implementation,” he says.

“The key thing is that the professionals represented by your membership, and memberships around the world, work with the recommendations, determine what works best, what works less well.”

With this backing from top financial players, action can now be taken to eliminate the inconsistencies that have existed in the disclosure process, Carney adds.

It’s here where the timing for success comes in, he says, adding that Canada’s accounting profession can assist in determining the applicability of the recommendations.

“The key thing is that the professionals represented by your membership, and memberships around the world, work with the recommendations, determine what works best, what works less well, and there’s an iterative process that help refine and make them truly decision-useful for the providers,” explains Carney.

This, he adds, goes beyond static disclosure and includes scenario analysis, management of risk and governance processes. “These are some very higher order types of disclosure, [which] takes true judgment, and that’s why having the support of the CPA and the professionals in the CPA is hugely important to make sure that this works.”

Using this collective feedback, the international financial community will share results at the G20 Summit in Argentina in November. “As those first disclosures come out, the big four accounting firms are preparing jointly a report for the G20 summit this year … to catalogue what is good practices,” shares Carney. “So, we are not yet looking for best practice, but what’s working. I think we then work into 2019 about refining that.”

Carney also emphasized the leading role Canada will play in the global energy shift. “Canada, more so almost than any other country in the world, is going to participate in every element of that energy transition.”

Executed in tandem, disclosure, scenario analysis, management of risk and opportunities will ensure a “smooth, orderly and effective” transition into that low carbon world, he says. “That’s why now is the time to do it, as opposed to when the effects of climate change are wildly manifested, and the risks are hitting balance sheets in real time.”  

Watch the full video here or read the full transcript below.

Interview transcript

Joy Thomas: Governor Carney, first, I’d just like to, on behalf of CPA Canada, thank you so much for agreeing to have a quick interview with me and answer a few questions.
Mark Carney:  An audit, yes. I always get nervous when I get asked by accountants. [laughs]

JT: We are very interested in the work that, through the financial stability board, has been done through the task force on climate-related financial disclosures. We think that’s really important work. I know they gave their recommendations in 2017 and I’m just really interested, from your perspective, how you will define success for that task force.
MC:  Well, I think the first thing is just having the task force itself, and its composition being all of the private sector. So a solution of the private sector for the private sector. The test is really going to be applied by your clients, by your professionals, and those around the world, to see which elements of the disclosures work, which ones could be improved, which should be trimmed back, which should be expanded. So, first and foremost, the test will be applied by the users, preparers and users.

The second thing, if I can give a short-term version of some of the success I think we have seen: First it was an accomplishment to work on an area where there were over 400 different types of schemes, if I can put it that way, for disclosure. And as you well know, and your colleagues would know, that the inconsistencies, and not as comprehensive or comparable or consistent, meant that there was the need for this. So getting to the recommendations, delivering them to the leaders summit in Hamburg in 2017 as you said, was a success. But then the second thing is to see the buy-in on the recommendations.

So, as we sit here today in April of 2018, we have financial institutions that control assets in the range of $90 trillion US that support the recommendations and are looking for implementation. So you see the providers of capital and credit wanting to see this implemented.

And the third element of success, of course, is the users of capital, the preparers of the accounts, starting to put this into action.

Now, here’s where I make, I think, an important point about the timing of success: We are seeing it being implemented and the key thing is that the professionals represented by your membership, and memberships around the world, work with the recommendations, determine what works best, what works less well, and there’s an iterative process that help refine and make them truly decision-useful for the providers.

JT: At CPA Canada we really are doing a lot in terms of climate change, climate change mitigation and adaptation work, and believe that there is a significant role that CPAs can play in that area. And so I’m wondering—and you sort of alluded to it a little bit there—how can professional accountants actually help to achieve some success with these measures?
MC: Well, the first was getting behind them, as the CPA did, supporting the recommendations: hugely important.

But now we move into application. One of the things that will happen this year, in 2018, is as those first disclosures come out, the big four accounting firms are preparing jointly a report for the G20 summit this year, which is in Argentina in November, to catalogue what is good practice. So we are not yet looking for best practice, but what’s working. I think we then work into 2019 about refining that. So CPAs will be working with their clients, thinking about, again, what’s useful for this industry, what’s less applicable for that industry, how to work with things like scenario analysis, which is really truly cutting edge, as you can appreciate, and very important to help tell the story.

If I may put a Canadian element to this, one of things that disclosure can do for individual companies but also collectively is tell a story or give the picture of what the energy transition is going to look like. Canada more so almost than any other country is the world is going to participate in every element of that energy transition.

Now to truly get that across, you don’t just need static disclosure—we do need it—but you also need that scenario analysis and a sense of how companies are managing their risks and their governance processes in order to do so.  These are some very higher order types of disclosure and takes true judgment and that’s why having the support of the CPA and the professionals in the CPA is hugely important to make sure that this works.

JT: It really is a very integrated approach. It isn’t just about financial disclosure, it’s about all of the elements that go into the organization and helping it define its strategy going forward and understanding these risks that are a result of climate change.
MC: Yeah, the risks and obviously the opportunities as well. Because you will see in that movement to two degrees there will be opportunities and one of the things we found, internationally at least, with the initial disclosures and providers of capital using them, is that they see it as providing a window, not just about managing climate risk and seizing the opportunities, but how companies think about longer-term value creation. And that correlation between managing these risks but also seizing other opportunities in different areas whether it’s in data, AI, other more tectonic forces if you will, it can be quite revealing.

JT: Well climate change, it has the ability to really disrupt business models. But like you said, at the same time, significant opportunities come with disruption.
MC: Yes. Maybe the last point I’d say is: yes, disruption always makes a central banker nervous, it makes a tech entrepreneur very excited, and everyone else somewhere in-between. Part of the advantage of this, in getting disclosure out properly, getting scenario analysis, thinking about managing the risks and seizing the opportunities, is it will make it more likely that we have a smooth and orderly and effective transition to that low carbon world. So that’s why now is the time to do it, as opposed to when the effects of climate change are wildly manifested and the risks are hitting balance sheets in real time. 

JT: Absolutely. Thank you very much for that, I really appreciate it. On behalf of CPA Canada, thank you for coming, and welcome back to Canada for this visit.
MC: Thank you, it’s good to be back. Thank you very much, thanks Joy.