A decade ago, Mark Carney, the former governor of the Bank of England and current Canadian prime minister, gave a groundbreaking speech about climate change and its impact on the economy. He highlighted how climate change poses a real danger to financial stability, warning that if we don’t act, future generations will bear the burden.
Carney coined the term “tragedy of the horizon.” This concept means the effects of climate change will hit much later than most people and institutions plan for, leaving future generations to handle the fallout. He argued that by the time climate issues threaten economic stability, it might be too late to fix them.
What Changed After the Speech
Carney’s words sparked a shift in global finance. Businesses began to acknowledge climate risks, leading to a rise in green finance. Governments in places like the European Union and Australia started supporting green investments through their policies.
To tackle the challenges posed by climate change, Carney suggested improving transparency. Companies should regularly report their environmental impacts. This way, banks and investors could better assess risk. A new global taskforce was formed to establish guidelines for these disclosures, which have been adopted worldwide.
Progress and Challenges in Green Finance
There have been notable successes since Carney’s speech, including the exponential growth of the global green bond market, which helps fund eco-friendly projects. However, the “tragedy of the horizon” still looms large. According to the Network for Greening the Financial System, climate change is now an urgent issue that could cost the EU economy 5% of its GDP by 2030—a blow similar to the 2008 financial crisis.
A recent report stated that climate finance reached $1.9 trillion (A$2.9 trillion) in 2023, but this figure falls short of the estimated $7 trillion (A$10.7 trillion) needed annually to meet climate goals outlined in the Paris Agreement.
The Broader Sustainability Picture
In the years following Carney’s speech, other critical issues like biodiversity loss have emerged. The health of our natural environment is vital, with an estimated half of global GDP relying on it. However, protecting nature is projected to cost $700 billion (A$1.07 trillion) a year, while current spending stands at only $100 billion (A$153 billion).
The finance sector often falls short, investing in industries that damage the environment rather than support sustainability. Despite the growth in sustainable finance, plenty of money still flows into unsustainable projects, unfortunately benefiting from policies that ignore the negative impacts on the environment.
Uncovering Deeper Issues
Even after nearly ten years of action toward sustainable finance, the industry has only addressed the symptoms of these challenges, not the root causes. The policies put in place to improve finance stability have not been enough to enact the large-scale change needed.
Research indicates that simply having better climate data isn’t enough. The University of Melbourne’s Sustainable Finance Hub emphasizes that we need a more transformative approach to address these challenges. Here are a few key insights:
Evolving Financial Tools: We need to change how we value assets and measure performance. Right now, investors often focus on short-term gains rather than long-term sustainability.
A Systems-Level Perspective: Big challenges like climate change require a holistic approach. Pursuing quick profits from companies causing environmental damage can undermine whole economies, hurting overall investment returns.
Redirecting Capital: More funding is needed for critical sectors necessary for a sustainable future, including climate adaptation and nature protection.
Invisible Emissions: Certain sectors, such as state-owned enterprises, often escape scrutiny and continue to contribute significantly to greenhouse gas emissions.
Carney’s speech shed light on how sustainability issues intertwine with economic challenges. Although we’ve made strides in sustainable finance, the tragedy of the horizon remains a pressing concern. To secure a better future, we need new and innovative financial strategies.
For further insights, you can explore more about sustainability challenges and their economic implications in resources like the Global Landscape of Climate Finance.
