Exclusive: One-on-one with Mark Carney
In the realm of finance, there are few Canadians with a resume as impressive as Mark Carney’s. He expertly steered Canada through the Great Recession as the Bank of Canada governor; held the same position at the Bank of England and is now leading impact investing at Brookfield Asset Management and serving as the United Nations special envoy for climate action and finance. Pivot caught up with Carney in Ottawa before he headed back to the U.K. this month to perform his appointed role of financial adviser for the U.K. presidency of COP26 United Nations Climate Change conference. CPA Canada Principal Michael Massoud asked Carney about his latest book, Value(s): Building A Better World for All, and touched on how Canada’s CPAs can use their skills and insights to champion the values required to bring about a reset for business—one where strategies are grounded in purpose to address climate change and other challenges. This viewpoint aligns with the mandate that guides Pivot as the magazine looks beyond the bottom line to focus on the people, companies and organizations that foster a better and more socially and economically responsible business community. There are few issues more pressing than climate change in our world today and, as Carney details, we need to start working immediately.
PIVOT: Mark, thank you so much for taking the time and meeting with me today.
Mark Carney (MC): Mike, it’s a pleasure to be here.
PIVOT: You’ve long been a strong advocate of sustainable business practices: As long ago as 2014, you and Pope Francis talked about how people and their well-being need to be at the centre of our economic and political life. Your new book eloquently makes the case that individuals, business and governments need to make different choices if we are to have a sustainable future for the planet. Yet when we look at the world today, the economic, environmental, and societal picture is not a positive one. That was again driven home in the UN report by the Intergovernmental Panel on Climate Change, released this summer. How did we get here?
(MC): Well, a number of things got us in this position, which is part of the reason why I wrote the book. And part of the reason for that focus on sustainable business practices and sustainable disclosure around those business practices—something I’m sure we’ll get into. I’m a huge fan of the market, but there are a few challenges when you have too much emphasis on the market. The first are classic ones, which are market imperfections—monopolies or externalities in the environment—that need to be addressed. The second is our human nature. We’re all, myself included, irrationally impatient: Recent events take on a greater importance perhaps than they should. And that leads to things like the tragedy of the horizon. And the third one, which is the most fundamental, is that not everything can be priced. But our nature is price, and we’ve set up a number of systems that optimize only that which is price. So, if something is not priced, it’s left out of the equation. The environment is an example of this, aspects of community and other aspects of sustainability are also examples. There’s a need to rebalance between value in the market and values of society. And it can be done. And there’s a few steps that I tried to outline in the book that accomplish that.
PIVOT: In the book, you talk about the multiple factors needed to drive positive change. You note the need to build resilience, capacity and to manage ongoing change by moving to “just in case” vs. “just in time” thinking. What critical levers do we need as catalysts to change the tide?
(MC): Well, we’re all prisoners of our past, but one of my experiences when I was governor of the Bank of Canada was, of course, the financial crisis. And, I benefited, and the country more importantly benefited, from people, like David Dodge and his colleagues, who thought about what might happen in advance and who prepared for the worst scenarios. There were some great leaders in the private sector as well—Ed Clark, at TD Bank would be another example. And it’s that discipline of thinking that helped us through. Not always reassuring yourself that the bad thing won’t happen, but thinking about what happens if it does, and then preparing in advance. Obviously, with the pandemic, there were many warnings about its likelihood and, in fact, almost a certainty of what could have happened. But no government really took the steps in advance. And the question is, why? And that goes to your question: What structures can we put in place to take the necessary measures to build resilience in advance? I wouldn’t say we’ve absolutely solved it, but we’ve taken huge steps in the financial sector. We have specific institutions, the Bank of Canada, for example, who are responsible for identifying these risks. We have structures between the federal agencies and the provincial agencies that then need to act to address those risks and there is an accountability to that. We need the same thing on the health side, we need the same thing on the environmental side. So, we need to build these structures and—I know this sounds a little dreary—to plan for failure, assume failure. What would we wish we had done when that failure happens? If we can do this in advance, then we have that resilience. And we can ride through it.
PIVOT: You talk about failure there and the importance of making change sooner rather than later. How much time do we have?
(MC): Well, if we’re talking about climate, we have very little time. And you just referenced, Mike, the IPCC report and one of the most striking things in that report—apart from the documentation of the extreme events, and the fact that the temperature is already 1.1 degrees above preindustrial levels—is that to achieve the goals of the Paris Agreement to stabilize the climate at one and a half degrees, at current rates of emissions, we have less than a decade. We will exhaust our carbon budget within a decade. CPAs know how to calculate budgets; you can do these numbers. So, we need to bend the curves quite substantially. We need to be reducing emissions by about seven per cent per annum, year in, year out, over the next 10 years. And we need to start now. So, we have very little time. The more optimistic thought here is that there’s an increased recognition of the importance of getting to net-zero, consistent with 1.5 degrees. That’s starting to not just be embedded at the country level with country objectives, but cascade down to businesses—and, very importantly, the financial sector.
You’re only as strong as your society. Ultimately, we need an inclusive society; we need a sustainable economy
PIVOT: Shifting the focus to COVID-19, there is no doubt the global pandemic has prompted a reset for individuals, businesses and governments. It has given everybody the opportunity to step back and rethink what is important, which is giving new life to the concept of purpose-driven business. You believe that to create a sustainable recovery, we will need to favour “regeneration over redistribution” and ensure we are rebuilding based on the “right values.” Could you talk more about how you see this working and the impact it can have?
(MC): Let’s pick out a few of those points. One is around purpose-driven businesses. To be clear, businesses—whether providing a service in the tech industry or building a new product—are ultimately solving a problem for people. The question is, what issue are you solving? One of the great Canadian companies, global companies, is Shopify for example. What are they doing? They’re a platform for entrepreneurs. They’re there for the entrepreneurs, they’re there for businesses. They get up every day and, seemingly through the night, and they think about how to make that better. And the consequence of that is that their suppliers, their employees and their businesses all work together as part of that ecosystem for the common goal of making commerce work better globally. That’s a sense of purpose, which is not elevated to a level of, say, the Sustainable Development Goals. Purpose as a unifying idea for a business, a mission that cascades down through the employees, through the suppliers, through the clients and really makes the boundary of the firm more permeable. Everybody’s working in the same direction, tremendous value creation in all senses of the word, financial value creation as well as social value. Now, one of the things that is shifting in parallel with that is a recognition of broader responsibilities of businesses as members of the community. We have these big societal issues. You’re only as strong as your society. Ultimately, we need an inclusive society; we need a sustainable economy, and is your business aligned with that? Are your hiring practices consistent with that? Are you developing people in a way that’s consistent with that? Ultimately, what’s being asked of businesses when it comes to climate is, do you have a plan for net-zero? Canada has a legislated objective for net zero alongside another 130 countries, a Swedish teenager can figure out the carbon budget and that we have less than 10 years and you have to get to net-zero to stabilize it and if you’re a company and you have purpose, well, what’s your plan? And all these plans need to come together.
PIVOT: You’ve referenced Shopify as a great Canadian business making change. I would like to talk about the power of Canadians to make powerful changes. In your book you state that Canada has the power to lead change; that we routinely transcend the limitations of our population to model values and policies for other countries. Can you provide some examples of how Canada has been able to champion and innovate for positive change?
(MC): Well, I think there’s a couple areas and one of them, and this may sound odd, but it goes to process. So I, as you know, worked with financial regulation of the Bank of Canada. But, of course, the Bank of Canada doesn’t have all the tools: There’s other federal agencies, such as OSFI for instance, that regulates the banks and the insurance companies; CMHC is another example; and the provincial authorities are exceptionally important as well. And it is a Canadian trait, and a skill, to bring parties together with a common purpose to try to solve common problems. Part of the challenge is identifying the problem. It’s better to identify in advance before the crisis, and we do that more often than not. But the process of coming to these decisions, that skill is a Canadian trait that we model, and I see it ported over to, for example, things that the European Union does. It means that Canadians can be very effective internationally when bringing together different parties, different viewpoints, finding a consensus, finding a synthesis. In the area of sustainability that I know the CPA cares deeply about and is very knowledgeable, there’s a lot of developing views around that. And so that Canadian trait of bringing those views together and coming to a decision is exceptionally important. Now, there’s many policies and business practices as well, but I highlight that core skill because it is a core competence. And you and I know as being Canadians, you almost have to live it every day because you’re constantly in situations where you are brokering across different parties.
PIVOT: I’d like to touch on your comments on CPAs and Canadian values and talk about Canada’s role in shifting business practices to more sustainable practices. CPA Canada believes there is a unique Canadian approach to cultivating a healthy and thriving economy that benefits everyone in society and sustains the environment. In fact, CPA Canada developed this as its purpose many years ago; we call it the Canadian Ideal of Good Business. In your view, what can CPAs do to help champion sustainable business and social practices?
(MC): You started with the right point, which is that this has been the purpose and it’s embedded and you’ve been living this for years. So, part of it has become bred in the bone. That’s the first thing. The second is, I think when we think about sustainability more broadly, so environmental, social, governance factors. As you know and CPAs know, there are two ways to think about these in the broadest sense: What are the factors that ultimately are going to have an impact on enterprise value of the firm? It could be because of social licence, it could be because of attracting employees, it could be because of externalities, public policy changes, it could be because of impacts on the broader ecosystem and so on. Identifying those factors, tracking them, managing them and, ultimately, it’s down to the firm how they want to manage them and improve them, but having the discipline around these factors is the core of it. The other aspect—and there’s different views around the world on this —is, what about the impact on “sustainable value?” Something that doesn’t necessarily in the near or medium term directly affect the enterprise value of a firm, but where the firm has a material impact on some aspect of environmental, social, governance writ large. And so, developing those techniques, those perspectives, informing the firm, informing broader stakeholders, ensuring they can be informed, is I think, fundamental to what you do. And because the CPA has had that sense of purpose, and has developed that expertise, you’re almost uniquely placed to be at the frontier of this thinking.
PIVOT: I want to target that comment on sustainability and CPAs. CPA Canada regularly convenes groups of stakeholders to discuss innovative ideas aimed at developing better business practices and policies. Most recently, we successfully engaged a broad network of Canadian organizations that championed Canada’s bid to host the International Sustainability Standards Board. If Canada is chosen as the host country, it will accelerate the ability of Canadian organizations to push forward sustainability policies and practices. How important is it for an organization like ours to help generate a movement for positive change?
(MC): First, I can’t emphasize enough how important the International Sustainability Standards Board is. This is absolutely a breakthrough for sustainability, and I would say for sustainable economic growth globally. Endorsed by the G20 Finance Ministers meeting in Venice—which sounds like a fantastic event; their first in-person meeting in more than a year and they managed to go to Venice (laughs). But anyways, they did some work and they supported this. We expect the launch of this at COP26 and it will be one of the signature events at COP26 in November in Glasgow. And to develop the highest quality standard for sustainability that brings together all these disparate standards, which are all well intentioned, and there’s a lot of good in them, but, as you know well, we need one core global standard. So, the ISSB is incredibly important and I absolutely commend CPA Canada for leading what is a very broad bid to support this that has broad support, not just from the preparers, but the financial industry, corporates and governments to support this incredibly important initiative. So, you’re doing the right thing. The core, of course, is going to be not just creating this board, but living it. As you know, and members will know, the first assignment of the board, or the objective of the board, is to come out with a draft disclosure standard for climate disclosure by the middle of next year. I mean, that’s tomorrow in these terms. But that’s a testament first to the urgency of the issue, secondly to the ability to bring together all these different groups and thirdly to the quality of people who are going to be working on it.
PIVOT: I wanted to touch on resilience. Canada has established a solid platform from which to address long-term sustainability. Canadian values are aligned with emerging social considerations and our governance is recognized and respected worldwide when you consider our strong capital markets and banking system. Speaking as the former governor of the Bank of Canada, what more must be done domestically to strengthen this country’s resilience?
(MC): Our core institutions need to have plans for net-zero—which they are, to varying degrees, coming out with to their credit. Secondly, we talked earlier about planning for failure, now I’m talking about planning for success. What is success in climate? Success is getting to net-zero, stabilizing the climate and getting to 1.5 degrees. But in that process, certain businesses that are competitive in a polluting or carbon-intensive world will not be competitive in a net-zero world. The question for financial institutions is, how do you help those businesses decarbonize? Do you have a strategy for that? Because we can’t have our institutions fail if society succeeds. So that sort of thinking and that forward planning is absolutely essential. We need to have that orientation towards net-zero and, very importantly, what this means is getting capital to businesses that are going to decarbonize or invest in decarbonization. It’s not about walking away from businesses or walking away from sectors, but about moving them forward and investing and we need to do that now with deliberation. And the other point I’d make is that we have the advantage because the country has now legislated the net-zero target. We are setting up an independent body that will assess our progress against that in terms of the policies. We’re seeing policies at the provincial level and at the federal level that will help move things forward. All of our political parties are putting forward various policies. So, we have a sense of where we’re going to go and getting the capital to where it needs to go is foremost.
Mark Carney chats with CPA Michael Massoud (right) in Ottawa (Rémi Thériault)
PIVOT: Now, we talked earlier about Canada as a role model for the world. You mention certain sectors, and I want to acknowledge the elephant in the room: Given our economic dependence on fossil fuels, can Canada truly be a role model?
(MC): I think we have to be, for several reasons. I’ll personalize it a bit, I was born just north of the oil sands, and I grew up in Edmonton, just south of the oil sands. My whole life there’s been a series of innovations, first to make the oil sands viable as business and then consistently, to grow it, and now, very much a focus on reducing the carbon footprint moving to net-zero in terms of the operations of the oil sands themselves. So that expertise that we have in fossil fuels, and certainly in energy writ large, that extends all the way to clean tech and we need to be at the forefront of these solutions. Now, we’re only going to get there if we’re very deliberate about it. If we’re absolutely clear about our goal, or objective, which is net-zero, it’s going to require uniquely Canadian partnerships between the federal and provincial governments and business on a shared objective. The way I like to think about it is that we have these tremendous resources, we have—I’ll speak in the language of CPAs—we have these cash flows that some go to the businesses, a lot goes to government—we should be reinvesting all of those cash flows in the energies of the future, including the transition of our core businesses, and the building up of skills for people in those areas who work for this business. It’s absolutely doable but, as you know, it won’t happen haphazardly. It has to be done very deliberately, with a clear objective and in a way that brings everyone along.
PIVOT: You also talked about the importance of injecting capital to different sectors. How do we ensure that challenges faced by all sectors and regions are addressed?
(MC): First is we recognize it. We also need to have a sense of the two broad issues the world faces. On the energy side, we’ve got the skills, the expertise and we can be deliberate as we just discussed. But the other issue the world faces is all aspects of the digital transformation, including the changing nature of work, which provides a tremendous opportunity for bringing up various regions to the national level. Again, it will require very basic infrastructure, I mean, everyone always talks about it, but actual broadband equality across the country. It requires education, it requires reinvestment of proceeds that come from industries that are currently competitive but are likely to be less competitive in the future, it requires consistency between levels of government. We have a huge opportunity in both respects, the sustainable revolution and the digital revolution.
PIVOT: How important is reporting to help transition the world to positive change?
(MC): It’s fundamental. In climate, in broader sustainability, ESG, there’s no one solution to be absolutely clear, but there are various elements that are absolutely essential. We cannot get to net-zero without proper climate reporting. Full stop. It is just too complex. It involves every company in every sector, in every region of the world. We need that information. We need to know who has a plan, who needs capital, who’s lagging behind and the system needs to work. And broader stakeholders need this information, so it is absolutely fundamental. I would say, as well, that private sector innovation, including from CPA Canada, from your clients, has brought this a long way. And now it’s time for the public sector, broadly speaking, to take the good work of the private sector to standardize it through, particularly, the ISSB and have a consistent and comprehensive approach to this reporting, so we can move forward.
PIVOT: In closing, I would like to give you the opportunity to invite Canada’s more than 220,000 CPAs to do one thing every day that will help shape a sustainable society for future generations. What would you like to ask them to do?
(MC): Wow, that’s a great question. The word that came into my head was humble. Humble in the sense of, well, who am I to tell Canada’s 200,000 plus CPAs, what to do? But humility is important. I think about it and I try to remind myself every day. I close the book with a short chapter—for once a short chapter (laughs)—on humility and its role for all of us, not just as businesspeople or policymakers, but as individuals. It’s an attitude that helps you move forward if you can combine humility and ambition. It is something that reminds us of our place in the broader system, not just your clients, but the broader system. The fact is that what we ultimately leave as a legacy is our values. What values did you live by and demonstrate every day in your personal and professional life? That’s what the young CPAs will draw upon. That’s what they will learn and that’s what they will pass on. So, trying to bring that to the fore every day, but bringing that to the fore and recognize that living these values has an impact not just on you, but very much on others.
PIVOT: Thank you, Mark. It’s been an honour to meet and interview you today.
(MC): It’s been my pleasure, Mike.
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Check out CPA Canada’s extensive sustainability resources, learn more about Canada’s bid to host the ISSB and why the country is the best choice for it.
Also learn how the ESG momentum is presenting an opportunity for CPAs and explore the primer for environmental and social disclosure.