Mark Carney Sustainability and Economic Growth – The Roles of Policy and Finance Mark Carney Sustainability and Economic Growth – The Roles of Policy and Finance
Mark Carney Heqadshot
Mark Carney
Vice-Chair & Head of Transition Investing - Brookfield Asset Management & Special Envoy on Climate Action and Finance - United Nations

Sustainability and Economic Growth – The Roles of Policy and Finance

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Takeaways

  1. Policymakers must develop the intangible finance ecosystem through regulations for intellectual property protection, data portability and decentralized finance.
  2. Canada must continue to build out its financial system for the net-zero transition.
  3. Canada needs clear and deep decarbonization policies as this will help drive investment over the next decades.

Action

Policymakers and financial institutions in Canada have important roles to play in the advancement of Canada’s future economy and they must adapt to the changing economy by creating the right policies and investments for our fastest-growing sectors.


What must be done in terms of policy, regulation, finance and investment in Canada to adapt to our changing economy?

I will suggest two on the policy and finance side. Both relate to the changing nature of our economies and many economies around the world. The first is in and around the nature of data and digital services. The nature of investments has shifted quite substantially over the course of the last 30 years or so, more away from tangible investments into investments in intangibles like ideas, goodwill, marketing, processes and all those aspects.

It is much easier to raise money against a physical asset such as a building or against a plant and machinery. It provides a degree of comfort and protection for the bank. It is much harder to lend against intangibles even though intellectual property (IP) is the one that is primarily increasing the economy’s competitiveness.

“Canadian companies are using the rich data that exists to provide better predictiveness of viability, allowing investors to lend to them earlier.“

The good news is that part of the changing nature of the economy provides part of the solution to the problem. Many Canadian companies such as Shopify are at the forefront of this. Canadian companies are using the rich data that exists to provide better predictiveness of viability, allowing investors to lend to them earlier. Banks and investors can lend more and help these companies grow more rapidly. 

We need to grow that whole ecosystem around intangible finance and the financing of small entrepreneurial businesses. We need to look at intellectual property protection, data portability and the development of decentralized finance in rapid order. I put a tremendous emphasis on rapidly growing that ecosystem because many companies and innovators need to access capital from the ecosystem. Also, that ecosystem is not just relevant to Canada. It has global applications. Canada is good in finance and if we really focus our mindset, we can build it out.

The other big block I would focus on is that Canada must continue to build out its financial system for the net-zero transition. It starts with disclosure and it includes tools such as stress testing and looking at how well-aligned companies are to the transition. We need to get capital to the innovators, businesses and people with the ideas on how to get emissions down. A financial system that is oriented to that combined with what the public wants and public policy can really accelerate innovation and growth in this country.


Which opportunity should Canada be focusing on to drive our future economy forward? What must we do to become leaders in this space?

Canada can pick many, but I will pick only one and focus on the transition to net-zero. The net-zero transition is a $2 trillion investment opportunity in Canada over the course of the next couple of decades. It is about a $150 trillion investment opportunity around the world over the course of the next 25 years. Those are enormous numbers. 

A third to a half of those numbers already lie in existing technologies that are applied at scale across our economy. That money is putting people to work in those fields. We can always do things better by saving more costs and being more efficient, and so there are definitely some innovative opportunities there.

But what is really exciting and necessary for our medium and longer-term success is focusing on the next wave of technology. These are technologies like hydrogen, carbon capture, storage and use as well as some elements of direct air capture. These are technologies that are close to being commercial and there are huge markets for them. They are hugely important for the development of the next phase of energy security and sustainability here in Canada. 

Then, there is a final set of technologies such as small modular reactors, direct air capture and sustainable aviation fuels, which are more at the venture capital end of the spectrum.

A slice through all of this is artificial intelligence and machine learning, and the role they play in optimizing everything across the grid. Canada can also lead in that.

If something is going to cost an estimated $2 trillion in Canada and an estimated $150 trillion around the world, by definition it is an amazing opportunity. I challenge Canadian business innovators to focus on this area. 


What policies and financial systems do we need in Canada to set our net-zero transition up for success? 

I have long advocated that governments need to step up, not just with objectives. We are all for net-zero objectives and the time path to that, but we need clear and deep decarbonization objectives along the way. Things like having a clean grid by 2035 are close enough, as well as the end of the sales of internal combustion engine vehicles after the 2030s. Canada needs decarbonization policies that provide clarity on the carbon price and address issues with hydrogen fuel mandates and contracts for difference. These deep decarbonization policies must be clear, simple and far enough in the future that people can do something about it as innovators but close enough to the present that incumbent companies must do something about it now. Our policies should create urgency but also give enough time for people to act on them.

“Canada must work on having all the information and tools we need in the market for the net-zero financial system.”

Secondly, Canada must work on having all the information and tools we need in the market for the net-zero financial system. We have been a bit slow on this. We have done a lot of consultation on it. The world is moving and we need to move now. We know what to do, we just need to get on with it. 

We have this great network of connectivity with the United States-Mexico-Canada Agreement (USMCA), the Comprehensive Economic and Trade Agreement with Europe and the Trans-Pacific Partnership (TPP) with Asia. Canada needs to make sure that our international trade deals are low-carbon trading relationships. Canada will be very well positioned for that as we move to a zero-carbon grid over the course of the next decade.

We want to press that advantage because it is the right thing to do, but also because it will create great opportunities for Canadians.

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What role must Canadian governments play to drive development in the key areas of Canada’s future economy? 

I am always a little leery of business being too reliant on government and some sort of government process. I am a stronger believer in setting clear goals, frameworks and regulations where needed, and then industry, business and innovators can figure out the best way to accomplish those goals. This is better than everyone settling down on an agreed consensus, which is usually a laboriously negotiated path that may or may not be the right answer.

“Consistent data regulations on an international level will create an enormous market opportunity for Canadian businesses.”

With that said, for certain emerging necessary technologies, there is a continuum from primary research and early-stage commercialization to scaling up. There are elements of that in energy technology and in AI and data sciences. Canada needs to implement a framework for data privacy, cross-border use of data and algorithmic bias to address the needs of the AI and data sciences sector. Ecosystem cooperation between business and government is important. Industry needs to be informed as these rules and standards are put in place. The way the world is going to move towards the implementation of consistent policies across all training areas so that what works in Canada will work with our partners in the USMCA, Europe and the TPP. Consistent data regulations on an international level will create an enormous market opportunity for Canadian businesses.


What role do policymakers and the financial system play in driving mission-oriented capitalism forward in Canada? 

Policymakers and the financial system need to understand what Canadians want but also how we can get value, markets and innovators to line up. This way, they can come up with the solutions needed for us to achieve those objectives.

The classic example, in this case, is sustainability. Canadians want sustainability. we see it in the way people behave, in polling and in voting patterns. Most people do not necessarily know exactly how to get there, but it is clear what the objective is. The role of government is to translate sustainability missions into clear objectives so that innovators and businesses can move towards them. That process has only started to happen and gain traction in the last few years. We are now moving from a general desire for sustainability and a cleaner world and greener planet to an objective to achieve net-zero. We need to have certain medium-term objectives consistent with that and current regulation standards that support that journey. This will create a credible prospect for the future to incentivize the type of investment we need for this space. That sense of mission can drive investment.

“The success of mission-oriented capitalism in Canada will partly depend on whether the financial sector is helping or hindering social mobility.”

This is all in parallel with creating a better world for all and for Canadians. It relates to how we can make Canada more inclusive and how we can create opportunities for Canadians across this country. One of the tests of our success is the kind of jobs people get and what sort of social mobility people have in different groups across the country. The success of mission-oriented capitalism in Canada will partly depend on whether the financial sector is helping or hindering social mobility. We need to ask what can we do as innovators and policymakers to make those outcomes positive. We must focus on mission inclusiveness, sustainability and working together to make progress.

Mark Carney Heqadshot
Mark Carney
Vice-Chair & Head of Transition Investing - Brookfield Asset Management & Special Envoy on Climate Action and Finance - United Nations

Bio: Mark Carney is the Vice-Chair and Head of Transition Investing at Brookfield Asset Management. He is also the United Nations Special Envoy on Climate Action and Finance. He also served as Finance Advisor to the British Prime Minister for the COP26 conference in Glasgow. He has worked at the Bank of Canada, the Bank of England and Goldman Sachs at multiple global offices. 

Organization Profile: Brookfield Asset Management is a Canadian multinational company that is one of the world’s largest alternative investment management companies. As of 2021, they have US$688 billion of assets under management. Their focus is on direct control investments in real estate, renewable power, infrastructure, credit and private equity.