LONDON — Mark Carney’s job is to guide the pound and the British economy through the Brexit storms. But the Bank of England chief is also building a legacy in another, unexpected field: climate change.

From twin perches atop the British central bank and a global oversight body, Carney isn’t shy to use a big tool in his kit — regulation — to nudge banks and investors to change their ways. Some would say more than nudge, but admirers and critics alike acknowledge his influence and impact.

For example last week, the Prudential Regulation Authority, the banking and insurance supervision arm of the Bank of England, became the first big financial regulator to specify how it expects banks and insurers to take climate change into account when managing their risk. The BoE proposed that senior executives must figure out whether enough capital is being held against climate risks. “Climate change, and society’s response to it, presents financial risks which are relevant to the PRA’s objectives,” the bank said.

“In recent years, my colleagues and I have spoken about how the risks posed to the financial system can be mitigated on a number of occasions,” Carney told POLITICO by email. “We are, of course, also regularly engaging with the banks and insurers we regulate to ensure firms are resilient to the financial risks from climate change.”

Carney isn’t just acting in the U.K. In addition to being the BoE governor, he is the head of the Financial Stability Board (FSB), the global regulatory body tasked with keeping the global financial system on an even keel. It was under his direction that the organization recommended all listed companies disclose any risk they face from climate change in their annual financial filings — and spelled out how exactly they should do it. The report was produced by the FSB’s Task Force on Climate-Related Financial Disclosures (TFCD), set up in 2015 by Carney and overseen by former New York Mayor Michael Bloomberg.

"It’s more of a symbolic thing than an actual issue that keeps us up at night" — Senior Canary Wharf-based banker

“Across the financial system, firms are increasingly inclined to treat climate risks just as they do other financial risk,” Carney said. “That requires better information.”

In a survey of the U.K. financial sector published last month, the BoE found that only a tenth of banks take a long-term strategic view of the issue. Carney’s regulators worry that if banks don’t take those risks into account, they could be saddled with bad loans or shrinking assets as a result of climate change — everything from oil companies going bust, car companies in the red thanks to the switch to electric vehicles, or insurance companies getting wiped out by unexpected storms. And that in turn poses a danger to the world’s financial system.

Bigger worries

On one side, critics point out the BoE is stopping short of mandatory reporting on climate risk, blunting its impact. Others say Carney is overstepping his mandate.

“Yes, climate change risks and disclosures are a thing these days, definitely a big political topic, but let’s be honest, it’s more of a symbolic thing than an actual issue that keeps us up at night,” said one senior Canary Wharf-based banker.

The focus on climate change as an immediate risk is a vanity project, said Tony Yates, a former professor at the University of Birmingham and a former BoE official. Any financial stability risk from climate change or the transition to a low-carbon economy will not materialize any time soon, he added. A bank’s exposure to companies that could be impacted by the transition are not likely to have longer than 10 years’ maturity. It’s unlikely in that 10-year space of time, environmental policy will have moved quickly enough to jeopardize the ability of, say, an oil company to meet its obligations to the bank.

“It seems far-fetched that this is high on the list of things banks need to worry about now,” he said. “Brexit risks, or the risk of another financial crisis … are much larger worries.”

He lamented that the BoE has taken on climate change risk because “they like that it’s sexy. It makes the bank look like it’s green and modern. That’s what makes me uncomfortable,” he added, especially because he believes Carney and other members of the BoE are jeopardizing their claim to political neutrality. That is especially dangerous at a time when the BoE is being accused of taking political sides in the Brexit debate. “They ought to be bending over backwards to keep really quiet about all these other things.”

Another London banker speaking on condition of anonymity said that while climate risks are crucial for the insurance sector, it’s not the same for banks: “It hasn’t become mainstream yet ... really, if you take a walk around the City I’m sure few people will tell you this is top of their agenda.”

‘Huge breakthrough’

Carney doesn’t agree.

In theory, the Carney recommendations are just that: recommendations. But they are having an impact on companies’ behavior by opening them to complaints if they don’t comply.

Balfour Beatty, easyJet, EnQuest and Bodycot were hit last month with a complaint from ClientEarth, an environmental advocacy group, referring them to the U.K.’s Financial Reporting Council over failures to address climate change trends and risks in their reports to shareholders.

The core of the complaint isn’t about the damage to the environment — it’s that the actions of the companies related to climate change are endangering their bottom lines and potentially harming investors.

For activists, the disclosure standards were a “huge breakthrough,” said Dave Cooke, a lawyer at ClientEarth. “In most jurisdictions, companies are legally obliged to disclose material financial risks to their business — and in many cases, this will include the array of risks posed by climate change.”

ClientEarth now wants the FRC to investigate and ensure shortcomings in the reports are corrected, warning that “after the widespread endorsement of recommendations by the industry-led TFCD, relegating climate considerations to the corporate social responsibility section of a report is no longer good enough. Manufacturers, builders, airlines, oil and gas producers — all are at risk in some way.”

The NGO also took aim at the accounting firms used by the four companies, arguing they “all failed to signal any problems.” ClientEarth is now waiting to hear back from the companies after sending letters to get them to “explain their approach.”

Threat to bottom lines

The FRC said it will review the complaint, which could ultimately be escalated to a court should the regulators detect problems and the companies don’t address them.

“The FRC does not have a policy on environmental reporting or climate change,” a spokesperson said. However, under U.K. law, publicly quoted companies have to provide information necessary to understand the position and trajectory of a company’s business, including information about “environmental matters,” such as the impact of the company’s business on the environment.

Bodycote, a heat treatment company, said that ClientEarth had not properly understood its business model when looking at its reports. The other three companies did not respond to requests for comment.

“When somebody like Mark Carney says something, people really listen" — Magnus Hall, CEO of Swedish utility Vattenfall

The threat to bottom lines, and of fines and lawsuits, is making companies across the financial, energy and other industrial sectors pay attention.

According to a report by S&P Global Ratings published in June, more executives are taking note of how climate change and severe weather events are hitting corporate earnings. The research shows that in the 2017 financial year, 15 percent of S&P 500-listed companies disclosed a weather effect on earnings, with 36 percent of utilities saying it had a negative impact.

A survey of CEOs by PwC, the consultancy, published this year, shows that close to a third of business leaders expressed “extreme concern” about what climate change means for their companies’ growth prospects.

“When somebody like Mark Carney — who I don’t know — but [when] he says something, people really listen,” said Magnus Hall, the CEO of Swedish utility Vattenfall. “We see more and more big companies coming to us and talking about their energy supply, making it fossil-free, and more climate-friendly. That itself puts pressure on the [industry].”

Carney’s recommendations present a new factor for investors to weigh into their portfolios.

“The TCFD increases the risk profile of companies with a high CO2 footprint,” said Ingo Speich, a senior portfolio manager and sustainability lead at Union Investment, a Frankfurt-based fund manager with €336 billion of assets under management.

Investors in coal-fired power plants, oil fields and pipelines risk getting stuck with stranded assets. Pension funds buying stocks in fossil fuel companies may see prices plummet as economies shift toward renewable energy and battery-powered cars. New regulations threaten to disrupt entire industries.

“As investors, we have to think early on what this means for our investments,” said Speich.

Climate costs

Carney this year said the financial industry has undergone “a transition in thinking and action since 2015.” That’s the year he gave a speech at Lloyds of London just a couple of months before world leaders gathered in France to sign the Paris climate change agreement.

Speaking to a room of executives, Carney didn’t frame climate change as an ethical issue in a way that would be familiar to green campaigners. Rather, he spelled out that the “tragedy on the horizon” is a potential threat to financial stability.

“At that time, it probably was relatively unusual for a prudential supervisor to be thinking about such risks, but that is no longer the case,” Carney told POLITICO.

Carney’s speech was “a pivotal moment,” according to Paul Fisher, a former BoE monetary policy committee member and currently the vice chair of the banking environment initiative at the Cambridge Institute for Sustainability Leadership.

Since then, Carney has repeatedly hammered the message home, most recently last month when the Bank of England published a report on climate-related impacts on the banking sector — the first of its kind.

“Financial policymakers will not drive the transition to a low-carbon economy, but we will expect our regulated firms to anticipate and manage the risks associated with that transition,” Carney said in a statement accompanying the report.

Language like that from a person in Carney’s position has a way of getting the attention of banks and businesses.

“Carney is the best champion and messenger we have on that issue because he is actually in the driving seat” — Mohamed Adow, international climate lead for charity Christian Aid

And indeed, banks — eager to mitigate regulatory exposure — have been highlighting their climate credentials. HSBC and the Royal Bank of Scotland announced early this year they will stop financing new coal projects, as well as the exploration and extraction of tar sands.

“We have engaged closely with the Bank of England as they have turned their attention to climate risks within the banking system, and we expect to continue working with them as they develop further guidance for the sector,” an RBS spokesperson said.

“Carney is the best champion and messenger we have on that issue because he is actually in the driving seat,” said Mohamed Adow, international climate lead for the charity Christian Aid, speaking at climate talks earlier this year in Bonn, Germany. “Whether he can internalize climate risk enough to get the BoE to influence the direction of [companies’] investment is a different question. But he’s got the message, and he’s communicating it better than any negotiators.”

Carney’s green credentials

Carney is one half of a power climate couple. His wife Diana Fox Carney is a British development economist who sits on the board of the Shell Foundation, and has held a range of leadership roles in a number of policy think tanks, focusing particularly on climate and energy issues. She currently also sits on the board of Ashden, a London-based sustainable energy charity.

After the 2015 Paris climate conference, Fox Carney co-authored a report for a progressive policy think tank warning about potential climate change-related losses to Britain’s economy. The report argues that financial markets are failing to address the problem adequately and recommended steps to reduce climate-related risks.

One person who has known the BoE governor since his days as head of the Bank of Canada, believes Carney’s upbringing in Canada’s remote Northwest Territories — one of the areas of the world that is most impacted by climate change — and his wife’s powerful influence have shaped Carney’s thinking on the matter.

“They are a great couple, he listens to her, and she’s a very strong advocate of clean energy, sustainability and climate change,” this person said.

But Spencer Dale, British Petroleum’s chief economist and a former member of the BoE’s monetary policy committee, sees Carney’s concern over climate as being driven by worries about impact on the financial system and not a personal green agenda. “As chairman of the FSB, [Carney] thinks about financial stability risks. That’s what his job is. He’s not focusing on any personal issues at all.”

Although Carney has helped drive the debate, it’s not a one-sided dialogue. He’s also responding to bottom-up pressure from NGOs, diplomats and businesses worried about climate change. Allianz Global Investors’ Chief Executive Andreas Utermann said he is not aware of Carney’s personal position, but the drive for change is coming from the “environmental, social and governance movement.”

“It’s not so much the regulators who are pushing the climate agenda, it’s more the end clients,” Utermann said.

The risks of inaction

Carney’s climate campaign comes as the industry as a whole becomes more broadly aware about its exposure to climate change.

The BoE’s September report on climate-related impacts notes that while about one-third of U.K. banks still categorize climate change as a corporate social responsibility issue, most recognize that it poses financial risks.

“The BoE organized multiple get-togethers, which Carney and climate experts attended, to discuss how climate change impacts our business,” said a Canary Wharf banker. “It helped to change our perception of the issue, which we used to see as merely political, hence not requiring action.”

“I have definitely seen an uptick in interest and demand from people in the financial world ... it’s Mark Carney’s work,” said David McCollum, a senior scholar at the International Institute for Applied Systems Analysis in Vienna.

Patrick Temple-West in Washington contributed reporting.