24 Mar 2020
Climate action is now part of everyone’s job: an interview with the Bank of England’s Sarah Breeden
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As the Bank of England’s Sarah Breeden explains, the task of decarbonizing the economy by 2050 must be an integral part of the whole organization, not just CEOs and boards.
AM: Do you see businesses reorganizing to face the challenges of climate change, with new divisions or new roles, with different responsibilities?
SB: Actually, climate change is an important part of everybody's responsibility. And if you don't think it's part of your responsibility, it's because you haven't thought about it yet.
I think that putting corporate and social responsibility departments or sustainability departments on it is the wrong thing. The need to transform an organization is organization-wide.
To have those carbon emissions peak and to have them then fall requires the whole organisation to change.
You need a clear, intended outcome, a clear strategy to get there and get the entirety of the organization working towards it. This isn't going to be solved by a few people.
Across the Bank of England, for example, we’ve set up a relatively small climate hub. It's got eight people in it, and they are our experts. They know about climate science and they champion our work. But what we also have is people in every single department of the Bank working out what this means for us. And it is everywhere.
So, I think it's about strategy and leadership, rather than new organizational structures.
AM: What about the role of the board, particularly the non-executive directors?
SB: The independent non-executives on the board can be a real force for good.
Independent non-executives can ask the questions. Have we got a strategy? What are we aiming for? How are we measuring it? What has been done differently over the last 12 months because of climate change?
That's a great question to ask. Really easy too. And it'll get the organization scurrying away, trying to work out what the right answer is. So, I do think they've got a really important part to play.
AM: Leaders we've spoken to in other sectors are considering how to balance commercial objectives with what they would like to be doing to manage climate risk. Is that something that you've seen in the financial sector?
SB: I can certainly recognize that challenge. I think the best way to think about it is to stretch your horizons and think about this over 10 or 20 years. And have a path over that long horizon to get there.
You don’t have to do everything in the next three years, and take a big hit as a consequence. But you do need to have a path to get to net zero.
The other thing I would always emphasize is the outcome is net zero. The quantity of carbon that we can put in the atmosphere is limited. The later we leave it to start that transition, the sharper and the more costly it's going to be. So, start soon, do it gradually, rather than leave it till later.
AM: Is it fair to say that some of the challenges faced in the real economy will be a bit different from those in the financial economy?
SB: Yes, in many respects, that’s true. Although we're stress-testing the financial economy, the amount of carbon that banks and asset managers themselves put into the atmosphere is relatively small.
What we're doing is stress-testing the investments that they have made, the loans that they have made.
We are using the financial system as a window to get to the real economy to see what those risks are.
What we're hoping will happen, as a result of stress testing the system, is that conversations will happen between the financiers and those they are financing, the corporate sector, that will set out that plan that I just described, the early and orderly transition to net zero.
AM: Finally, if there was one thing that companies were to change going forward, to have the most impact on mitigating climate risk, what do you think it might be?
SB: Setting a clear strategic outcome and a way of measuring incremental progress to get there, that recognizes that the next five years are key.
AM: Thank you, Sarah, for a very fascinating insight into climate risk and its implications for the financial system. It sounds like lots of thinking has been done and, as our recent poll confirms, it now needs to turn into action.
SB: Absolutely. My pleasure.