Mr. Bruno Bézard is the current General Director of the Treasury of France, and he served previously as Tax Commissioner of France and also as the Minister for economic affairs at the French Embassy in Beijing. In this interview, we see an inside perspective on the momentum building into the climate talks in Paris, and some of the leadership coming from finance ministers around the world.
Sustainability: Recently, France has taken some bold steps to lead on addressing climate change. This includes requiring investors to disclose carbon risk and new carbon taxation. Is this the kind of leadership we need more generally on climate change?
Mr. Bézard: Globally, we are trying to introduce a more accurate set of economic signals given the realities of climate science. In light of this new reality, we are trying to build a consistent set of policies.
Regarding the financial sector, the core idea is to raise awareness in financial markets of the necessity to look carefully at carbon and other climate risks, which can be hidden in balance sheets. In the end, this should give proper incentives to market participants to more accurately take climate related developments into account when making investment decisions.
It is a clear priority for us. In France, Michel Sapin, our Minister of Finance, and Laurent Fabius, our Minister of Foreign Affairs, are pushing strongly for the international finance community to be much more proactive in this field. This is forcefully echoed by other international voices. For example, Mark Carney, Governor of the Bank of England, recently delivered a very significant speech to which we should be paying close attention.
So yes, this is absolutely the kind of leadership we need more generally.
Sustainability: This kind of leadership is unusual in terms of its regulatory scope. What is driving it? Why don’t we see it as much elsewhere?
Mr. Bézard: Climate change has been an important topic for France for years.
In fact, it is part of a more general approach: France has always been convinced that it is crucial for economies to pay attention to longer term issues and to negative externalities, which are accumulating but not sufficiently recognized by decision-makers and investors. As such, it is appropriate that policies address this gap, and regulation can be part of the solution.
This perspective has sometimes been opposed with a certain skepticism, which is still out there. But we would not do our job as financial regulators if we did not push for the recognition that climate change will have consequences and that there is a material possibility that the most carbon-intensive assets cannot be exploited as expected. Indeed, stranded assets are not just an idea for discussion but should be considered seriously.
However, the collective understanding of these issues is shifting swiftly. An example of a similar movement where we saw dramatic change is the fight against international tax fraud. In 2010, the call to address this was not received seriously by many international bodies. Now, 5 years later, everything has changed.
My personal guess is that we are going to experience the same type of significant and rapid change in climate finance and in the involvement of market participants. Climate change risks, which were regarded as a little bit romantic, and not serious enough to be taken care of by the finance community, are now a central topic for ministers of finance. We saw it recently in Lima Peru, where over 50 ministers of finance and 20 international financial institutions demonstrated their commitment to further mobilization, and of course transparency, of climate finance, in order to deliver a low-carbon, climate-resilient future. New leadership is emerging.
Sustainability: Looking at the opportunity globally, who could make the biggest difference with a bold move like what we see in France?
Mr. Bézard: It’s hard to pick one. But there are certainly examples of very significant changes.
I’ve had the privilege of living in China for a couple of years and have been following this discussion there quite closely. Step by step, the environment has become a very sensitive issue there, and China is moving rapidly in terms of internal polices as well as in their positions in international debates with significant work on green finance. A few days ago, President Hollande met with Premier Xi, and they talked at length about the emerging risks with climate change. Premier Xi is arriving here in Paris soon to continue those discussions in preparation for COP21. Having China with us in this discussion is extremely important.
Sustainability: Is the fossil fuel industry a big obstacle to seeing this outcome more globally, or is it also part of the solution?
Mr. Bézard: This is not a Manichean, good guy and bad guy thing. The fossil fuel industry is a part of the solution, and many large companies are trying to take action in a very positive direction. Total, for example, is really trying to diversify into renewable energy. Clearly, much more needs to be done, but my personal sense is that these companies are crucial for the overall picture to change. They don’t have a choice. The economics have changed, and this will push the shareholders and management of the companies. In addition, the social pressure is significant and growing.
Sustainability: Is a “carbon price” an important part of the solution?
Mr. Bézard: Having a carbon price helps, because decision-making processes are positively impacted by including a price for carbon. The World Bank initiative to put a price on carbon is one very important example, and we fully support that. As I mentioned, the economics of the low carbon transition are changing fast, and we have various tools to further contribute to addressing climate externalities. Carbon taxes, carbon markets, norms, incentives, and deterrents to push actors to adapt and to move towards a lower carbon economy are very important in this regard.
Sustainability: What can we do in the short term at COP 21 to get emissions moving downward, if anything?
Mr. Bézard: As of now, more than 90% of countries globally have published their “national contributions” to reduce greenhouse gases. This confirms we can limit global warming to under 1.5-2°C by the end of the century, but for this we need additional efforts. So it is important to reach an agreement in Paris that sets rules for periodically revising upwards the national contributions.
Besides that, non-state actors like companies and local public authorities are encouraged to take action. Over 10,000 commitments from non-state actors have already been registered. From NGOs to corporations, these pledges have been made before COP21, and I expect we will see more of this as momentum builds. It’s an important aspect to the success of COP 21.
Sustainability: How can investors really matter on climate, beyond around the edges?
Mr. Bézard: I think they are already starting to matter. It’s moving very quickly. The intellectual transition has happened, and investors are now taking these issues very seriously and implementing risk management in various forms.
As a result, this increasingly matters for firms. On behalf of the French government, I sit on board of a major energy company, and I can tell you our investment decisions are now heavily influenced by climate issues. Investors simply will not invest in an asset which could be impaired by climate risk.
For an institutional investor or a private equity firm, there is a real responsibility for chief investment officers to avoid investing into assets that could be stranded because they are too carbon-intensive. This is an incredible change of mindset. I’m struck to see to what extent it is happening in many places and at all levels.
Sustainability: Who will pay most for lack of real action at COP 21?
Mr. Bézard: Everybody would be affected. The OECD estimates that, if no further climate change action is undertaken, the combined effect of only some of expected impacts of climate change on global annual Gross Domestic Product (GDP) are projected to rise over time to likely levels from 1% to over 3% by 2060, and by between 2% and 10% by the end of the century. These negative effects will be especially large in Africa and Asia.
Therefore, inaction is not an option. Ambitious mitigation and adaptation actions are needed to reduce not only the expected level of climate damages, but also cope with their impacts. There is political momentum for an agreement in Paris that sets the framework for such ambitious actions in the coming decades. We have momentum, and we will, collectively, succeed.
Note: This interview was conducted by Tim Nixon, Managing Editor of Thomson Reuters Sustainability.