MARK CARNEY made his name as a sound steward of money. He entered the public eye in 2008 when he was appointed governor of the Bank of Canada at the age of just 42, and his swift and decisive interventions there are credited with helping the country weather the storm of the global financial crisis better than any other rich nation. From 2011 to 2018, he was chair of the global Financial Stability Board, established in the wake of that crisis to strengthen oversight of the world’s banks and try to avoid a repeat. In 2013, Carney was appointed governor of the Bank of England, the first non-Briton to oversee the UK’s central bank since it was established in 1694.

Since stepping down from the governorship in 2020, he has turned his focus to the tricky interface of economics and the environment. He has returned to the private sector as a vice chair and head of impact investing at Canada-based firm Brookfield Asset Management – a role that recently garnered some controversy for that firm’s definition of its net-zero climate investments. Carney is also the UN special envoy for climate action and the finance advisor for the UK government’s presidency of the UN’s COP26 climate change conference, a crucial point for the world’s climate plans, scheduled to take place this November in Glasgow. He has just written a book called Value(s): Building a better world for all about how we can and must rework capitalism to help solve the crises we face.

Richard Webb: What is the significance of your book’s title, and what was it that motivated you to write it?

Mark Carney: I came in as governor of the Bank of Canada at the start of the global financial crisis. I finished as the governor of the Bank of England literally the week of the first UK lockdown, at the start of the covid-19 crisis. Throughout that time, a third crisis – the climate crisis – has been building too. I reflected on all this and realised that, in many respects, these are all crises of values – in particular the relationship between how markets value things versus the broader values of society, including values that are necessary, actually, for the market to work well. The book tries to chart a way of thinking about value in economic terms and philosophical terms. It looks at how that thinking has changed, how that’s contributed to these crises and then what responses will work.

The ex-governor of the Bank of England is now a key figure in international climate action talks. Progress requires radically reimagining how financial markets value nature, he says

How has our perception of value changed?

Markets have come to the narrow view that only things that can be given a price have value. We can price Amazon, the company – its current market value is almost $1.7 trillion – but value is only ascribed to the Amazon, the region, when the ecosystem is destroyed for the purposes of agriculture or harvesting timber. Meanwhile, the market view of value applies not only to material goods, but increasingly to the whole of life, from the allocation of healthcare to education and environmental protection. The seeds of the crises we have experienced lie here.

The belief in unfettered markets has become central to Western capitalism in recent decades. Is that era over?

I think we have seen the dangers of it. The global financial crisis, which was caused in part by surrendering supervisory judgement to the perceived wisdom of the market, showed that danger. But we need the dynamism that market value brings from innovators and entrepreneurs to develop solutions to the problems we face. We need to get market value and societal values back into an equilibrium.

What do the financial, covid-19 and climate crises tell us about how market value and broader societal values have diverged?

One thing it tells us is about how markets undervalue resilience. It has become clear from covid-19 that we underinvested in basic pandemic preparedness. The cost of putting in place at least the initial provisions to protect our healthcare workers, to protect vulnerable people, to have mass testing, would have been equivalent to the economic output we lost in a single day during the crisis. That’s nothing, yet those investments weren’t made. In the climate crisis, similarly, we’ve undervalued the resilience of ecosystems.

“We can price Amazon, the company. But value is only ascribed to the Amazon when it is destroyed”

Then there is the value of solidarity. In the run-up to the financial crisis, individuals in financial institutions were increasingly focused on their own pay and little on the risks they were running for their organisations, and still less for the wider financial system. There wasn’t a sense of being part of a bigger set of entities or of custodianship.

By contrast, we’ve seen a very positive sense of solidarity in the covid-19 crisis. Early on, a million people volunteered to support the NHS in the UK. The vast majority of people have observed lockdown restrictions – through concern for their own health, yes, but also the health of others. Having recognised that greater value needs to be placed on resilience, on solidarity and crucially on sustainability, we need to talk about what sustainable growth is and what needs to happen to achieve that.

Does inequality need to be part of the conversation too?

The pandemic shone a light on the inequalities in our society. The burden of the disease and its economic impact have fallen disproportionately on particular groups, for example racial groups. These inequalities have been widened by the covid-19 crisis, and yet we’re all facing the same enemy, if you will. The question is: what do we do about that?

We also have issues around inequality of economic opportunity related to the digital revolution, which in many respects has been accelerated by this crisis. Many tech companies talk about a world that is “digital by default”; in other words, working will become more distributed, remote and digital. That has many advantages if managed properly. But letting technological innovation run its course without directing it to broader human needs can be risky.

In what sense risky?

Previous industrial revolutions have tended to widen inequality. Increases in wages for workers lag behind productivity increases, generally by decades. We need to ask whether machine learning, artificial intelligence and so on enhances people’s jobs or diminishes them. There’s a difference between digital by default and digital by design.

What does “digital by design” look like?

It means ensuring the benefits of new technologies are shared, in the sense of as many people as possible being able to participate. Are we, for example, changing our social welfare systems, our educational systems, our tax systems and our financial systems to keep pace with new ways of working, to provide adequate support and opportunities for lifelong retraining?

“It’s early stages, but markets are developing mechanisms that put a price on nature”

New financial technologies have a part to play here. For instance, machine-learning algorithms can more easily and rapidly make judgements about which start-ups deserve financing and can grow quickly. That can help close what in the UK is about a £20 billion financing gap for smaller companies. Similarly, technology can dramatically reduce the cost of cross-border payments, opening up a much bigger global marketplace for smaller companies – say, someone selling fashion.

My point is that, if we’re conscious about it, we can build an architecture where you have a kind of artisanal globalisation that spreads activity in a way that not only creates jobs, but promotes good jobs and reduces inequalities, both between regions and between individuals.

We can also marry that with our response to the climate crisis, by devising new ways to facilitate decarbonisation and zero-carbon trade. How we address the climate crisis is in many respects the test of whether we can rebalance again between the dynamism of the market and what’s ultimately required for sustainable growth.

Talking of sustainable growth, in the UK, we have just seen the publication of the government-backedDasgupta Reviewon the economics of biodiversity. It paints a bleak picture of how we have failed to value nature. Why is this such a problem for conventional economics?

The easier part of that question is about how we value an externality, a cost or benefit not incurred by a producer, such as carbon emissions. The build-up of this greenhouse gas leads to changes in our climate that, if left unaddressed, present existential consequences for the whole planet. There are ways to address this kind of thing. We’re making baby steps towards putting a price on those externalities, through things like carbon prices.

The harder part is how we value nature more broadly. Let’s imagine a species of a bird that itself doesn’t have an economic use, but is valuable nevertheless. Are there dangers in putting a price on that bird because it encourages economic trade-offs? Say I’m going to make a lot of money by building a new factory, and it will affect that bird. Well, what if the value of my new factory is greater than the imputed value of the bird? The Dasgupta Review makes a core point that we must view ourselves as part of nature, not separate from it, and that we have been depleting our natural capital.

How do we live up to that ambition?

It’s early stages, but markets are developing mechanisms that put a price on aspects of nature that will help to improve it – for example, carbon offsetting through schemes like reforestation. Companies looking to reduce their carbon footprint are increasingly interested in those types of project.

But, as the Dasgupta Review sets out, we need to establish a separate accounting system that allows us to gain some sense of whether our overall natural capital is being depleted or being added to. Then we can have an objective to add to it. Carbon pricing doesn’t take account of all the other benefits we get from nature, besides its ability to draw down carbon. And it ignores our intergenerational responsibility: it doesn’t take account of the value future generations will draw from that natural capital. These are ultimately not aspects of our heritage that should be traded off against shorter-term profit.

In your book, you say that new “technologies” are needed in the spheres of engineering, politics and finance to tackle climate change and the wider environmental crisis. How are we doing with those?

On climate change, I think we are getting there. We’ve left it very late. But we now have engineering solutions that brilliant minds have developed and that companies have made much more economic. About two-thirds of emissions can be economically reduced today. There are pathways for the other third, but there need to be some breakthroughs; that is still in the realm of venture capital. But people recognise that if they can crack, say, green hydrogen as a fuel for trucks or direct air capture of carbon, there will be an enormous use for those and they or their company will make a lot of money. So we’re finally seeing effort, capital and focus flowing into those.

On the political side, we have moved on from a world where the scale of the effort required to deal with climate change wasn’t appreciated and where the effort was slow and fragmented. There is increasingly a recognition that we need to get to net-zero greenhouse gas emissions and keep net warming below 2°C, and ideally below 1.5°C. This is to the credit of those who’ve helped spur the change through social movements, many of them led by young people. We see 130 countries and counting that have net zero as an objective, with the US likely to soon join the club. There is broad public support for this. The UK has led the way, with a legislated commitment to net zero, as has the European Union. The politics is beginning to cascade down to companies and into the third leg, finance.

What financial technologies are needed to turn things around?

You need information, financial tools and some pricing mechanisms. With those in place, the financial market will pull forward the adjustments that are needed, recognising that net zero is a core political goal, that the engineering technologies exist to advance it and this is where people want to invest.

This is just beginning to happen at scale. Through COP26 in November, we’re looking to really accelerate this progress, to get the core of the financial system around the world – banks, pension funds, asset managers – committed to net-zero transparency, so that people can see where institutions stand. That brings these three elements – engineering, political and financial – together, and it has the potential to be exceptionally powerful. The big caveat is that we really need it to be powerful, given how late we’ve left it.

The UK government recently failed to stand in the way of a deep coal mine being developed in Cumbria in the north of England. Are politicians still only talking the talk?

Current policies are better than previous policies, but they are still not enough. There has been big progress in that there are much clearer signals about what isn’t going to be allowed. Knowing, for example, that there will be no new internal combustion engine vehicles from 2030 in the UK and Europe sends a message to the auto industry to get on with developing electric vehicles and charging infrastructure. It tells consumers that if you buy a diesel or petrol vehicle in the latter half of this decade, you will be buying obsolescence.

That said, the Climate Change Committee, an independent advisory body to the UK government, still judges that UK policies aren’t enough to get us to net zero. It isn’t my job to defend the government, but I think later this year, maybe next, we will have additional policies that move further in that direction. What’s important for business is that there is a credible track record demonstrating that governments will do what it takes. In countries like the UK, that track record is now lengthening.

Some form of carbon pricing is central to the climate battle (see “The cost of carbon”). But have episodes like the gilets jaunes protests against fuel price rises in France shown it is too unpopular?

The problem is that a uniform carbon price is a regressive tax. The amount the less well-off pay for petrol or the carbon embodied in their food or heating is a bigger proportion of their incomes than it is for the better-off. But it is important to have a uniform carbon price. The solution is to rebate individuals, as Canada has done with its recently designed scheme.

Should we also be penalising polluting industries by divesting from them?

Certain industries do have huge emissions. The energy sector, steel and cement are examples. But I wouldn’t advocate a blanket sale of shares in every company in, say, the energy sector because some are reinvesting their money in a green future. The companies that can do most to reduce emissions are actually some of the ones you want to back – you go to where the emissions are. The question to pose for any individual company is: what is it doing with its business strategy and investments to reduce its impact on the planet?

“We can’t self-isolate from the environmental crisis. We have to live the values that are necessary to solve it”

Every investor has to make their own judgments about who’s sincere on this front and where they draw the line between somebody who’s not doing enough and somebody who deserves their backing. They also need to ask themselves if they have enough information to fully know.

Again, with COP26, we’re trying to help with this through some of the plumbing-type work for the financial sector, establishing reporting requirements so that every bank, pension fund, insurance company and investor can make those judgments about whether companies are being managed in a way consistent with getting to net zero. I hope with the meeting in Glasgow, we’ll get to that point. Then, hopefully, more people will be asking those questions and moving their money to places that are consistent with their values.

Do you think COP26 will succeed?

It has to. There is great momentum in civil society, and encouraging momentum in business and in finance responding to that. We’ve had encouraging steps taken by major countries like China, Japan and South Korea in recent months. There’s the new orientation of the US administration. All of that is positive. It’s a huge responsibility for the UK and, rightly, it is looking for a very high-ambition outcome. That’s what the world needs. We’re going to need every minute between now and November to help achieve that.

The thing that sets the climate crisis apart from the other crises of value is that failure isn’t an option. Right?

Well, we don’t get another shot, put it that way. Failure could happen. But, you know, financial crises tend to come along once every decade and you can learn your lessons and improve. And there, I think, we have improved in many regards. But we can’t self-isolate from the environmental crisis. We have to live the values that are necessary to solve it.

The cost of carbon

A central plank of plans to combat climate change is the principle that greenhouse gas emissions should be paid for. Governments can implement this in several different ways, from direct carbon taxes – in which governments put an explicit price on the right to emit greenhouse gases – to “shadow pricing” in the form of regulations that discourage carbon-intensive industry.

Most countries already have a piecemeal carbon tax, in the form of special levies on petrol, for example. The main aim here is generally to raise revenue. In contrast, some of the schemes afoot now, for example in the European Union and Canada, plan to impose a flat tax per tonne of carbon dioxide or equivalent, with the aim of nudging entire economies away from polluting activities. As economies adjust, the carbon price is gradually raised, with the aim of promoting a virtuous circle of lower-carbon living.

That has the potential to be very unpopular. For that reason, economists suggest the best move is to rebate the money raised to individual consumers, particularly the less well-off. It might seem pointless taking money and giving it back. But it means that products like food or fuel that are more carbon-intensive are also more expensive, and this could help change consumer behaviour – while not putting anyone at any overall economic disadvantage.

Canada’s federal carbon tax plan has all these features. Its carbon price, currently $30 a tonne, is planned to rise to $170 a tonne by 2030. The system is designed so that people in the bottom two-thirds of the income bracket get a rebate that pays them more than they put in, in the form of a quarterly “carbon dividend” to their bank account.