Thank you very much, Mr. Chair.
I apologize in advance. I didn't write the transcript. This is the transcript of a podcast interview Mr. Carney gave with the famous Liberal strategist David Herle. If we want to learn a bit more about Mark Carney, which is the subject of the subamendment, this is the opportunity to do so. Because I'm feeling somewhat generous, we'll skip a bit of the hockey intro for Ms. Thompson.
We'll get into Mark Carney partway down the second page, where David Herle said, “sports scholarship or academic scholarship?” He's talking about where he went to university.
Mark Carney said, “I went to Harvard and they have financial aid. So you get in or you don't, and it helps if you do other things in getting in, but once you're in they just calculate based on your financial need. So I had financial aid. It wasn't a scholarship per se but some grants, some loans, including some from the Alberta government: the Noble scholarship. I was a Noble scholar. How's that? You can refer to me like that for the rest of the pod: Noble scholar.”
David Herle was laughing: “Noble scholar. Yeah, I'm writing that.”
Mark Carney said, “[I'm running for] the Alberta heritage fund, so I owe.... It's one of the many things I owe Alberta.”
“And Peter Lougheed.”
“Yes, absolutely.”
David Herle said, “So there's something that's inexplicable about you to me and you need to explain it to me. And that is...you're in New York City. You're a master of the universe. You're making scads of money. You're living the glamorous life. This is the 'go, go USA' of Bill Clinton and Bob Rubin in the 1990s, and you're at Goldman. And you quit to come back to be an official in the Department of Finance—not a junior official but not the boss, either—just an official in the Department of Finance. Why did you do that?”
Mark Carney said, “Well, I've always been interested in public policy. I came from, you know... For background, my father was an academic—principally an academic—but he was a deputy minister, for a time, in the Alberta government during the Lougheed years. Al Boomer Adair was his minister, both in northern affairs and parks and recreation—not the sitcom but the very serious department in Alberta—and I'd always been interested. I had done undergrad. I worked for a few years in London and Tokyo. Then I went back and did graduate work in economics, and my intention was to go into something like public policy relatively quickly. As things happened, [I went to] Goldman [and] got a great assignment working with the ANC—the African National Congress—just as Nelson Mandela was coming into government. And we advised them. And so I came and did that. Anyways...blah, blah, blah. It took 10 more years before I executed coming into public policy. And I actually came into, initially, the Bank of Canada, David. I saw an ad in the paper for a deputy governor, and I thought, wait, you know, it's my last chance, or here's a chance, and if I'm really serious about this I should try it. David Dodge took a chance on me, and you know the rest. One thing [leads] to another after that, and I loved every minute of it.”
David Herle said, “Interesting. Okay, so you have in latter years thrown yourself into the climate change file, and you talk a lot about climate change. A big butt-chunk of your book is about climate change. You're involved in a number of initiatives, but I recall from years past, talking to you, that you weren't always as focused on this issue as you are now. Did you have...? Well, I don't want to use, necessarily, Chrystia Freeland's words, but did you have an epiphany of sorts on this, and what was it?”
Mark Carney replied, “No, there's lots of issues. I worked on this issue as a civil servant, particularly when Ralph Goodale was finance minister. There was a climate [plan somehow], but then, you know, obviously, when I was governor of the Bank of Canada, we had the financial crisis and the core work there. Really, where it came to a head was once I was governor of the Bank of England. One of the things.... One of the many things you're responsible for, as the Bank of England, is you oversee the insurance industry, and that means it's the fourth-largest insurance industry in the world. It includes Lloyd's of London, which is this incredible, you know, 300...three-century-plus-old institution that does things like insure hockey players' knees, which they do. But also they are one of the biggest insurers of property in the Gulf of Mexico, you know, and their biggest risk is basically climate change, so they have to be absolutely on top of it and....
He continued, “extreme weather events had tripled in the last few decades. The cost of that had gone up five times. You know, so huge...hundreds of billions of dollars. And that's actually just the insured cost. There's much bigger costs that aren't insured, and it's very obvious that.... Well, I mean, I knew it was happening, but the scale of it happening and the speed with which it was changing becomes present.
“Then, in parallel, and this was about six, seven years ago—six years ago, I guess—I'm asked, because I'm overseeing at the time all the financial reforms post-crisis, something called the financial stability board, so the global reforms for that. I was asked by the G-20 leaders, what's the role of finance, the financial sector, in dealing with climate change? The response was, well, there's an issue here, which is, and I termed it, there's [a] tragedy [on] the horizon, which is that by the time it's a clear and present danger for everybody in the financial sector, not just the Lloyd's of Londons and the big insurance industry, it's going to be too late to meet the climate goals. It's going to be too late to keep temperatures below two degrees. You need to think about, you leaders...with the financial sector is just not going to front-run politics and policy. You have to grab this and pull it forward.
“That led to a series of reforms and measures, including...well, I won't bore you with them, but very important plumbing reforms that are now absolutely mainstream. At the time, it was viewed as.... You know, there was a wide range of opinion on that, but I think it would have been good if I—well, not 'I' but 'we'—had done that 10 years ago previously. I wasn't in a role to do that, and I wouldn't have seen it. But all of that is now becoming mainstream, and we're working on the next phase of addressing it.”
David Herle asked, “What do your conversations about climate change go like with your friends from Alberta?”
Mark Carney answered, “They've moved over time. I think the recognition.... I've never had a conversation with people in Alberta about the issue of whether or not it was happening—I mean, there's a range of opinions...or the speed with which it was happening, but what the contribution could be from Alberta or of Canada to be part of the solutions, or what the responsibilities of others are, and how seriously the world was taking it.
“I think what's happened in terms of the financial sector, and how central this is now viewed in terms of investment and lending of major financial participants all over the world, look, we just signed up $70 trillion—$70 trillion, I'm going to repeat that—in American dollars, with net-zero plans from across the financial sector. That number is going to grow between now and Glasgow. I think we were a bit slow to recognize that that was coming. It's been clear for a while that it was coming. It's probably come a little sooner than even I would have expected. But I did expect that we would end up [here some day].”
David Herle asked what that meant—whether those with $70 trillion have signed up to a set of targets and protocols that mean they really can't invest in the oil sands anymore.
Mark Carney answered, “Well, I mean, this is not that per se. What they've signed up for...and this is very important. I'm going to go from easy to hard, okay? The easy bit is that a country or an energy company or a bank says, I'll be net zero by 2050. You know, that's quite far. It's not easy to get there, by the way, but it's easy to sort of say or make that commitment. Of course, the more reputable you are, if you make the commitment, you intend to make it, and then you pull it back and say, okay, where are you going to be in 2030?
“Now, 2030 sounds like a long time, but it's not a long time when you think about an energy company or an auto company. For an auto company, that's one or two models, right? Think about all that R and D and development and plant design you have to do, particularly if you're switching from an internal combustion engine to an electric vehicle. So we see it. You think about changing the portfolio, the generation mix of a utility, or substantially reducing the carbon footprint of the oil sands, or getting up and running in scale, real scale, not just pilot projects, carbon capture and storage, which is what we need for the oil sands—”
Mark Carney seems to be a very big fan of carbon capture and storage. I'm sure my friends in the NDP would like to question him on that kind of commitment, but we'll go back to the transcript.
Mark Carney continued, “which is what we need for the hydrogen economy and natural gas. Nine years from now is not tomorrow, but it's the day after tomorrow in terms of what needs to be done.
“So the key for these, looping back to what you were asking for these financial institutions and this $70 trillion...one of the key things we've been trying to do is say, okay, so you have to say where you're going to be in 2030. What proportion of the 50% reduction—the 50% reduction—does the world needs to do to be on track in order to get to net zero by 2050?
“I'm not going to explain the math, if you want, but that's basically what's required. And then what are you doing in the next five years? What's your decarbonization for the next five years—your plan—and how are you going to do it by various industries? The key thing, though, which we're trying to get in, and I think we are succeeding, is decarbonization. So if there's a company, and I won't name specific ones, out in the oil patch—in the energy patch—in Alberta that is going to make a big investment or consortia of big investments that are going to pull carbon out of the process and decarbonize, then we want banks and investors to put money behind that.
“And when they put money behind the actual portfolio—I'm realizing most people will be listening to this and not watching it, so my very clear hand movements are only for your benefit—initially the carbon in that portfolio of the bank or the investor will go up, so we're designing a system so that there's credit for the fact that that investment initially will lead to lower carbon five years out, or 10 years out, and that's absolutely critical. So, you know, Carville said, 'It's the economy, stupid', and we're saying, 'It's just the transition, stupid.' It's not just jumping overnight to a green future. It'd be nice if we could, but we can't just do that, so you'd need to get the money behind it.
“So look, what it does mean for any company anywhere in the world, increasingly, is, if you are a major emitter, what's your plan? What's your plan to get your emissions down? What kind of investments do you intend to make? What's your pathway to get there? And if you're part of the solution, you're going to get capital thrown at you. If you're part of the problem or if you're slow, it's becoming very expensive and difficult to raise money. The former is definitely the case. That's the other side of that $70 trillion. This money needs to be put to work.”
We'll leave the transcript for a second.
Mr. Carney is saying we need $70 trillion to decarbonize and is suggesting that companies that don't have a plan will face higher capital costs, which we've already seen happening. The investors in the market have been demanding that companies disclose their climate goals. However, what's interesting is a regulator like OSFI, which came to this committee and bragged about the fact that, three or four years ago, it had three or four people working in a climate change division, now has 30 people working in its climate change division and is now threatening financial institutions in order to increase the capital requirements for lenders who lend to oil and gas.
It seems to me that's a bit of a stretch considering OSFI's mandate. I don't recall any debate in Parliament about changing OSFI's mandate to include such a strong focus on climate change, but perhaps Mr. Carney has a view on whether he supports the regulator taking an approach like that, especially if the regulator is now going to start evaluating all these plans. Are the regulators going to start analyzing all of the climate change plans and emissions reduction plans, or should they just let investors in the market decide what they will demand from that company?
I'd love to ask OSFI that question, but it hasn't been here in almost a year. I wonder if they're trying to avoid us, Mr. Chair.
We'll go back to the transcript. This is David Herle speaking: “I spent the first decade of my life as a farm boy in rural Saskatchewan. So here's an innovation I never thought I'd see. The most important piece of equipment in farming today isn't a tractor, a combine or a plow. It's the smart phone a farmer holds in their hand. Yes, new technologies like AI, robotics, big data and network connectivity have changed the way we farm for the better.”
Mr. Chair, I apologize. This is just an advertisement in the podcast. I'm going to skip this section for Ms. Thompson's sake. I know that we don't need to give any free advertising to anyone here at the finance committee.
Now I'll get back to the podcast. Mr. Herle said, “You're doing a lot of work with the UN. What's that like? I have a pretty jaundiced view, but I only really follow the security council. What's it like to work with the UN?”
Mark Carney said, “You follow the Security Council—well done. That's good.
“What's it like working with the UN? Well, look, what I do, and I spend half my time on this, at least, is I am a special envoy—'Noble scholar and special envoy', if you could use both of those from now on—for the Secretary-General on climate finance, so what we're talking about...it's the private sector finance for climate, how to organize the financial system and get them behind being part of the solution for climate change—getting money to that example we just talked about, the company in Alberta that's going to reduce its carbon footprint—or a new renewable or a new technology, all that, but organizing the whole system.
“I'm also Prime Minister Boris Johnson's adviser on exactly the same issue.”
Let's take a time out from the transcript. Mr. Carney also advised Prime Minister Boris Johnson, so Boris Johnson obviously had a lot of faith in Governor Carney. I wonder what Governor Carney thinks of Mr. Johnson's record, especially with respect to Brexit. We know that Mr. Carney was very against Brexit and that Boris Johnson wanted to bake the Brexit pie. However, that would be an interesting discussion to have with Mr. Carney as well at this committee.
Let's get back to the transcript.
Mark Carney went on, “All of this is coming together for this COP meeting, COP 26 in Glasgow, which is the big climate meeting this November in Glasgow. It's why you had the Biden summit, why you had Canada's new target. We'll just be here...they're rolling on that.
“Look, I spend.... We have a team of about 30 people based in London—one-third private sector, one-third from Bank of England and one-third from the U.K. Treasury—and what we do is we're organizing...a whole work plan to get the plumbing in place in the financial sector to deal with this issue and to get private institutions—which, I think, the $70 trillion number gives you a sense of the scale—lined up to be part of this solution. There's probably.... You know, I've lost count, but there are probably about a thousand people in the private sector who are working on various working groups on setting up new carbon markets, dealing with people like the World Bank so they're more effective, and on and on and on.
“To be honest, I'm not involved in the joys of the UN bureaucracy or.... Obviously, I deal with the Secretary-General and Amina Mohammed, who is the deputy secretary-general, who's outstanding. Literally, when you're talking to these people, they are coming out of a discussion or about to go into a discussion of some horrible global issue or challenge, from the pandemic through to some of the most difficult hotspots in the world, so they have my admiration. But it would be a tough place to work [there], that's for sure.”
I should pause here for a moment, Mr. Chair. Mr. Carney had initially arranged a number of financial institutions that signed up to support the push for net zero and to dedicate a certain amount of funds. A number of those original signatories have now withdrawn their support, so that's another interesting point of discussion we should have with Mr. Carney. Why have some of these large financial institutions, which initially were very enthusiastic about his project, since stepped away?
In addition, companies like S&P—Standard & Poor's—are no longer reviewing ESG ratings. They're not providing ESG ratings anymore for companies. Why? It's because they're meaningless.
ESG is more of a marketing scam than it is anything substantive. The way that the E, the S and the G interplay together, the environmental, sustainable and governance.... This notion that a company could do something really badly in one of those areas—environmental, sustainable or governance—but could be saved by stellar performance in another one of those areas is a bit bizarre. For example, should a company that is an awful polluter be given a free pass because it has a gender-balanced board? I don't know, but these are the kinds of discussions that people have when we give ESG ratings, and that's why Standard & Poor's has stopped doing it. It's because the whole thing is a scam.
Let's go back to the transcript.
David Herle said, “So you've got a book out. Here it is: Value(s)."
Mark Carney responded, “Yeah, I've got a book.”
We'll skip a little bit ahead here.
David Herle said, “Some people say they struggled with finishing it, but they just don't like big words, those people. I found the book exciting because it contains the seeds of a different governing philosophy and an intellectual break with Reagan and Thatcher, in my view.
“What's the thesis? If you could just take our listeners and viewers through it, what's the basic thesis of the book?”
Mark Carney said, “Well, let me maybe say a word on the genesis and then I'll get to the thesis, which is.... As you mentioned, I was a central bank governor—a G7 governor. I started just on the eve of the global financial crisis. I literally handed over the keys to the Bank of England in the middle of March last year, just as the U.K. was locking down and we were launching the first phases of the response to the COVID crisis. In between, we had the euro crisis, we had Brexit, and we had the mounting climate crisis. I was basically a governor through a series of crises.
“What I wanted to do is step back and think, okay, is there a common driver of this and what is there? I did feel, really, that both in looking back over the sweep of economic thought and also the experience of these crises, that we had lost a balance between some of the core values that are necessary, first for the market to function well.... I'm a big believer in markets and I'm a big believer that markets can serve a role in solving our biggest problems, but markets don't exist in a vacuum. Markets are social conventions in the end. Sorry for the big words there, but social conventions. They have.... You need fairness. You need a sense of fairness and responsibility. You need a resilience to markets. You can't have markets just crumble as they did with subprime crisis, so you need those elements.
“You need markets. Markets are also largely short term or can be short term. We are, as individuals, short term. We have this tragedy on the horizon with respect to climate. How do we bring in elements of sustainability? How do we bring in elements of solidarity—in other words, regional solidarity in Canada, solidarity with others in societies leaning against the forces of inequality? How do we marry all of those with the power of markets—what I call the dynamism of markets—which is what's going to lead the innovation, growth and better jobs, etc.? How do we bring back that balance?
“The thesis is that the pendulum—and it's on more dimensions than just two—has become unbalanced. It walks through a number of examples. It really starts from a place where actually...how economics views value. Up until the 19th century, it was viewed as either something intrinsic to the good or the activity, or a reflection of the labour and the work that had been put into that activity. That's what Adam Smith thought. That's what David Ricardo thought. It happened to also be what Marx thought. It gets flipped around in the 19th century and intensified over the course of the last several decades, where the value of something is its price and only its price. If something isn't priced, it does not have value. That's the way things become treated.
“I mean, I use this example on climate, which is that we know precisely the value of Amazon, the company—$1 trillion. Amazon, the region, has no value until actually you start burning the forest and convert it into farmland.
“That doesn't really make sense. We have a tendency—this is a little less in Canada, but you see it in the U.K. and the U.S. and other places—of paying for charity and bringing charitable or volunteer acts like blood donation and other charitable acts into the market. What happens is that changes peoples' behaviour. It corrodes the math underlying that.
“Okay, so that's the set of issues. I'm not explaining in purely linear form. You've got to read the book, but it goes through that and what I try to do.... Part of the reason the book is longer is to say, so what? Because it's frustrating when you get to these sorts of elaborate analyses of the problem without any suggested solution.
“What the book does is look at these three crises, climate, COVID and credit—credit being the financial crisis—and says, okay, what are some of the responses to that? What are the lessons? What does that mean if you're a leader of an organization? If you're a company or a country, what are the types of things that you should do to reinforce these broader set of values—fairness and responsibility, solidarity, sustainability—alongside dynamism?
“I do make the point.... This is a sincere point and you would expect that I would have figured it out earlier. After 30 years, it finally came to me: Humility [being] the most important value. It is important. Humility is a very important value [like it or not] but not humility that's incapacitating. You've got to marry ambition and humility in a way that's effective. I try to draw that out.”
David Herle said, “I'll pass that along to Scott Reid.
“When [you're reading the] book, and you're describing this, my mind is turning to my nostalgic view of the 1960s, when the difference between what CEOs made and their workers made was much smaller than it is now, where rich people got taxed at high rates, where people got good union jobs that they had for life, with benefits, and business leaders cared about and lived in the communities in which their businesses operated, and they cared about the communities in which their business operated. That may all be rose-coloured nostalgia, but that's what I'm thinking about. But I don't hear anybody calling for us to return to the 1960s.”
Mark Carney said, “I think, well, first thing, there's always a danger of picking a point in time. There is this sort of saudade, right? You have this nostalgia for a time that never was or an interpretation of a time that never was. But there are elements...and this is not a call to go back to the sixties in any way, shape or form.
“In fact, one of the core points of the book, and I think one of the key challenges we have as a country and that others share in is how we take the technologies and opportunities and the risks and opportunities that come with them, and build, you know, a more balanced system. The book is about building a better world for all, and a lot of that can be done through greater connectivity in a way that builds the regional economy in Canada and that helps our small businesses take on the world through platforms and other things.
“Let me loop back to your core question. I think one of the issues—and I spend a fair bit of time in the book on it—is around corporate purpose and the nature of the company. I am not a Friedmanite. I think that should be clear. I think Friedman, in part, was a brilliant guy and made some good points in a variety of ways, but his fundamental shareholder primacy is fundamentally wrong and fundamentally, in my view, flawed, because he gives himself an out by saying that, in fact, the only purpose of business is making profits for shareholders.
“He says that subject to the ethics and customs of the age, and he assumes that those are unchanged by an emphasis solely on profit. In fact, he literally says, in his famous essay, that any activity that is support for the community or support for the workers is hypocritical window dressing, which, if it serves the purpose of 'hypocritical window dressing', serves the purposes of enticing people that are pulling the wool over people's eyes, and then that's okay. But it really is ultimately just for that goal, and that's wrong. That's wrong for two reasons: One, there's a corrosion...and it's the purest market fundamentalism. The book goes through it, and it doesn't matter. It's in the book. You'll see it in the financial markets.
“You see that. I lived it in the run-up, and I had to deal with it as a public official in the run-up to the crisis and afterwards. You see it in the social strains that we have because of these greater extremes that have built up between whether it's CEO compensation and those on the shop floor or how we pay our essential workers, not for what we need them for in essential times but only for normal times. It's still there. You also see it...and I think there's a real economic issue, which is you don't see it....
“If you have a sense of purpose and a sense of alignment you can get from a company.... In other words, you're solving an issue. Shopify has a sense of purpose. Its purpose is mass entrepreneurialism. Its purpose is to make it easier to start a business and sell anywhere. That animating purpose actually helps those who supply Shopify, those who go on it. It organizes the community. It has that knock-on effect, which actually is self-fulfilling. It's good for Shopify itself, but it's good for shareholders, the employees and, very importantly, the customers, the clients, the businesses that are there.
“That world, that world where you have a company with a sense of purpose, where we have that solidarity within a company, with its community and within the company: I think there is a rebalancing towards that. If I can bring it up to the level of a country and the country's objectives, we're going through two huge rewirings in the economy. We're at the cusp. We're still in early innings of the digital rewiring of the economy. It's been accelerated by COVID, but there is a lot more to come.
“I say in the book, are we going to be digital by default? Are we just going to let this happen in the way that the technology companies determine is best or are we going to be digital by design? Are we going to design policies? Are we going to help people build the skills? Are we going to organize things so that as many Canadians can benefit as possible from it? You can see ways that can happen. I go through it in the book.
“On climate and sustainability, we're getting to a point...and this is a key point and an opportunity for us. Some see it as a challenge, but I think it's an opportunity where we have moved to.... We're going to deal with climate. We've got 130 countries, now joined by the United States, that say we're going to get net zero. We've got 1,500 of the world's largest companies who say net zero. We've got $70 trillion of money as of last week saying we're going to go net zero, so there's an animating purpose—an objective.
“That changes the equation because that means that lots of smart people, lots of driven people, lots of inquisitive people around the world are going to be figuring out how we best get to net zero and they will get there in a way that is more effective, cheaper, quicker than a government would and that's—to go back to the title of the book, which is values, with parentheses around the “s”—how you get value in the market serving the values of society.”
David Herle said, “I'm a little unclear as to how you break the stranglehold of shareholders on corporate behaviour because.... I mean, I'm not an ethical investor. I direct my investments to wherever I can get the greatest return. We're repeatedly told, when we all rail against corporate malfeasance, that our pension funds are all invested in those and if we wanted our pension funds to invest ethically, we'd have to settle for less in our retirement.
“I know I work with a lot of CEOs that would like to be doing their jobs differently, but they've got to report to these shareholders on a quarterly basis and if the shareholders don't think they're doing everything they can to drive up the share price...the CEO will be replaced. It may be that the corporation that shouldn't run only for the benefit of shareholders, but shareholders have a chokehold on them, don't they?”
Mark Carney responded, “Well, I think the first thing is.... There's a variety of premises in that question that are wrong.... I'll grant you that you don't invest ethically. I'd like to let the record show that.
“The first is that there is this trade-off. The evidence is very strong.... I'm someone who's been in and around financial markets for three decades—the private side and the public side—so I know something about this and the book goes through this in some detail. The alignment, the correlation between broader ESG.... I won't give you all the details, but a number of them are in the book, including the footnotes. About 60% of the analyses find a positive correlation between companies that score more highly on weighing ethical, social and governance”. They score more highly—a positive correlation between companies that score on weighing ethical, social, government, sustainable and so on.
Carney continued, “Why is that the case? First...there are a series of issues. In many cases, what you're doing is you're screening out a problem. You're screening out a Volkswagen or a company that's going to do something bad and eventually going to be caught out on it. Sorry, Volkswagen.”
David Herle laughed: “That's a good example.”
Actually, we should pause there.
Volkswagen, the company that was busted and fined significant sums for misleading the entire planet, is a massive recipient of corporate welfare to build a battery plant in Ontario. The Canadian government is giving tons of taxpayer money to a company that purposely misled every buyer of its products and we're supposed to just accept that it's the price of getting production here.
