Central Bankers Should Stay Out of the Climate Debate

Politicians have handed over too much power to unelected technocrats.

The claim that climate change is the most important issue facing humanity has become an article of faith for the political class. Yet at the same time, politicians seem strangely happy for unelected technocrats to make pronouncements and even to form policy in this area. Central bankers once did little more than act as behind-the-scenes advisers to governments on technical matters of monetary policy. So it is striking that they have now become prominent figures in the climate debate.

After almost seven years as governor of the Bank of England, Mark Carney is about to become the United Nations’ special envoy on climate action and finance. From the early days of his time at Britain’s central bank, he played a key role in making climate change an area for central-bank policy. More recently, his counterparts at other central banks, including the European Central Bank (ECB) and the US Federal Reserve, have followed his lead. Although their arguments are usually framed in terms of finance, they generally have far wider implications for policymaking.

Carney took up his role at the Bank of England in 2013 after occupying the equivalent position for five years at the Bank of Canada. In parallel with his two stints as a central bank governor, he was chair of the Financial Stability Board (FSB) – an international organisation set up by finance ministers and central-bank governors – from 2011 to 2018. He has been active in the policymaking debate on climate change for several years.

Carney’s interventions were low key at first, but not for long. Back in 2014, he got into a correspondence with the House of Commons environmental audit committee on the subject of ‘stranded assets’. The concept was introduced by the financial think-tank Carbon Tracker to warn about assets that would be unusable as a result of either climate change itself or of climate-change policy. In 2015, Carney warned publicly that investors could face ‘potentially huge’ losses due to climate change. The thrust of Carney’s argument was that tougher rules to curb climate change could make vast reserves of oil, coal and natural gas ‘literally unburnable’.

Carney’s statements are not detached observations. On the contrary, they are designed as a direct threat to energy companies in the here and now. They put pressure on investors, such as pension funds, to withdraw money from fossil-fuel firms or at least to threaten to do so. Carney’s threat had far-reaching economic consequences. And yet it was made by an unelected state functionary.

In 2015, Carney’s FSB was asked by finance ministers representing the world’s 20 largest economies to set up the Task Force on Climate-Related Disclosures (TFCD). The goal of the committee was to develop climate-related financial risk disclosures for use by companies. Michael Bloomberg, the billionaire US media mogul, was made its chair. Although its work was framed in technical terms, it was another initiative designed to pressure businesses to behave in particular ways.

Not long before the TFCD was officially established, the Bank of England governor outlined the role it could play. In a speech at Lloyds of London, Carney emphasised what he saw as a narrowing window of opportunity to tackle the threat of climate change. Again, this was coming from a technocrat with no democratic mandate.