Finance Ministers Grapple Over Economic Threat of Climate Change

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and RIYADH, Saudi Arabia The United States, under pressure from European countries to address the economic threat of , agreed on Sunday to include a reference to those risks in a joint statement at the conclusion of a meeting of the worlds top economic leaders. The inclusion of the term climate change in a statement from the Group of 20 finance ministers appeared to be a notable, but subtle, acknowledgment by the United States that the threat from rising temperatures was a valid economic concern. The reference, on the third page of the document and at the bottom of a long list of potential risks, said the financial stability implications of climate change were being monitored by the G20s Financial Stability Board. The Trump administration does not accept the established science that human activities are the dominant cause of climate change. It has environmental regulations, including those , over the last three years. President Trumps position that these regulations have left the United States at odds with other countries at international forums, regularly threatening to derail official statements, or communiques. But rising temperatures and increasingly frequent and severe weather events have stoked concerns that climate change poses a significant risk to the world economy and the global financial system. Bruno Le Maire, the French finance minister, said in an interview on Sunday he and Treasury Secretary Steven Mnuchin had a long discussion on Saturday evening about the language. While Mr. Le Maire had hoped for something more extensive, he said he believed that progress was made. I think he clearly understands that even if we do not share the exactly the same assessment on climate change, there is a need to address the issue within the G7 and within the G20, Mr. Le Maire said of Mr. Mnuchin. I think that we have a totally different perspective on the risk of climate change for us, this is clearly one of the major risks. This is a financial risk. Mr. Mnuchins counterparts were pushing for a more assertive pronouncement of climate change as an economic headwind, leading to last-minute negotiations over how the phrase would appear in the statement. References to climate change as a risk have been excluded from such statements while Mr. Trump has been in office. At a news conference on Sunday, Mr. Mnuchin played down the inclusion, saying it was merely a factual reference to work that the Financial Stability Board was already doing. I did not bend to pressure from the Europeans, Mr. Mnuchin said. Some of the people felt it was relevant to put in. The Trump administration has long demonstrated antagonism to combating global warming, including , the attempted of basic scientific facts and advocating policies of that are responsible for planet-warming emissions. In recent months, Mr. Mnuchin has faced questions about the consequences of failing to safeguard the environment. He has generally demurred, noting that while he used to drive an electric car a Tesla he is not an expert on climate science. However, he has cast doubt about climate policies that he believes could inhibit growth and under his watch the Treasury Department has rejected policies such as carbon pricing to fight climate change. In December, he said he did not believe that studying the economic risk of climate change fell under the purview of the Financial Stability Oversight Council, the interagency panel he oversees that is charged with monitoring risks to the financial system. Over the past three years, the Trump administration has systematically disengaged the Treasury Department from all aspects of addressing climate change. In 2017, it reversed an Obama-era guidance restricting the United States from supporting the financing of coal plants through the World Bank and other global investment institutions. The new policy calls for the United States to promote universal access to affordable, reliable, sustainable and clean energy, help countries access and use fossil fuels more cleanly and efficiently. The administration also eliminated the agencys Office of Environment and Energy, reassigning its staff elsewhere within the Treasury Department. At the World Economic Forum in Davos, Switzerland, last month, Mr. Mnuchin garnered headlines when he Greta Thunberg, the teenage climate change activist, for expressing views on fossil fuel investments without a degree in economics. Mr. Mnuchins wife, Louise Linton, took to Instagram to defend Ms. Thunberg and her environmental views before deleting the posts. While in Davos, Mr. Mnuchin also told Christine Lagarde, the former managing director of the International Monetary Fund, that she was incorrect in pinpointing the risks of climate change as a critical issue for the global finance community. I just dont want to kid ourselves, he said. I think theres no way we can possibly model what these risks are over the next 30 years with a level of certainty, given what I think is changes in technology and everything along the way. At a time when , the absence of the United States Treasury Department is notable. On Friday, economists at JPMorgan issued a report to clients warning that life as we know it could be threatened by climate change, and , health and the stability of national security. Here you are, youre the most important economy in the world still. All of your peers are working together to figure out how to use the instruments of fiscal monetary policy in order to manage a smooth energy transition, and youre not in the room, said Rachel Kyte, the dean of the Fletcher School at Tufts University and a former climate change envoy for the World Bank. Matthew J. Kotchen, an economics professor at Yale University who led the Office of Environment and Energy during the Obama administration, said having a specialized office dealing with environmental issues meant climate change was being discussed alongside tax policy and exchange rates three times a week at the highest levels of the department. The fact that Treasury is not leading on this and getting involved says theyre not even responding to their immediate constituency, Mr. Kotchen said, noting that the insurance and finance industries are increasingly thinking about how to manage the risks from climate change. The Federal Reserve has also been cautious in its approach to climate-related issues, even as other central banks have made them a top priority most notably the Bank of England, which under Mark Carney climate risk-related stress tests for banks. Jerome H. Powell, the chairman of the Federal Reserve, summed up the central banks approach to climate change during his January news conference: Societys overall response to climate change needs to be decided by elected officials and not by the Fed. While Mr. Powell has emphasized that climate issues are largely outside the central banks remit, he and his colleagues are attentive to the risk that global warming and severe weather could pose to the financial system, which the Fed supervises. I think the public has every right to expect and will expect that we will assure that the financial system is resilient and robust against the risks from climate change, he said in January. As part of that effort, Mr. Powell suggested the Fed might join the Network for Greening the Financial System, a group of central banks that advocates sustainable finance and low-carbon economic growth. The Fed currently attends the meetings but has not formally signed on. But just weeks after Mr. Powell said the Fed would probably join the network at some point, he seemed to soften that stance in testimony before the House Financial Services Committee: We havent made a decision yet, he said. Climate change is an important issue, a very important issue, but its essentially assigned to many other agencies in the federal government and state governments, Mr. Powell said. European countries, which are currently considering new carbon border taxes, are pressing ahead with their climate responses and trying to pull the reluctant United States along. The International Monetary Fund warned last week that the global economy could face major shocks if climate change was not addressed. The climate crisis is upon us, Kristalina Georgieva, the I.M.F.s managing director, said Friday at an event in Riyadh on the eve of the G20. transcript From The New York Times, Im Michael Barbaro. This is The Daily. Today: Over the past few weeks, several of Americas largest and most profitable companies have unveiled elaborate plans to combat climate change. Andrew Ross Sorkin on why theyre doing it now and just how meaningful the plans really are. Plus, the results of the Nevada caucuses. Its Monday, February 24. Andrew, tell me about this letter. So every year, usually the second or third week of January, Larry Fink, who runs BlackRock, which is the largest money manager in the world they oversee $7 trillion. Thats with a t. Wow. Basically 401(k) plans, pension plans. All of that money lives under BlackRock. And so Larry Fink has huge influence. And he writes a letter every January to the C.E.O.s of the world. So Ive made it my I dont want to say lifes [LAUGHS] Ive made it my job for the past several years to try to get my hands on this letter, because typically what he says changes the conversation. And it is the letter that sent shockwaves through corner offices across America yesterday, BlackRock C.E.O. Larry Fink issuing a warning to corporate leaders about the dangers of short-term thinking. Back in 2016, he wrote a letter telling C.E.O.s, stop issuing quarterly guidance, stop telling us what you Expect your earnings to be. expect your earnings to be, because then it creates this artificial expectation and then youre trying to manage to that number. And he wants C.E.O.s to think more long term. And what happened? I personally think thats a very good recommendation. Huge companies, like Unilever, stopped issuing quarterly guidance. Warren Buffett publicly came out and said that companies should stop issuing quarterly guidance. It was to give encouragement to companies that really felt uneasy about giving guidance to perhaps have a little more backbone about it. But Larry Fink was the first. OK. In 2018, Larry Fink wrote a letter Ive now been to a number of dinners where your letter has already been the topic of conversation. saying, you know what, its not enough simply to have profits. You have to have purpose. I believe the involvement in a community, to have a purpose, is vital for long-term survivability and long-term profitability. And then a year and a half later the Business Roundtable, which represents all the big companies in the world, said, you know what, its not just about profits anymore either. So his letter really has A kind of biblical quality in the world of business. It has weight. Because he genuinely is the largest investor in the world. And as a result, Larry Fink controls huge chunk stakes in these companies. And he, to some degree, can control whether people on that board, the C.E.O., sinks or swims. He can vote that board out if he doesnt like what theyre doing. In certain cases, he can pull his money from their companies if he doesnt like what theyre doing. Which explains why every year it seems like you go to pretty extraordinary lengths to get your hands on this letter. And this year, its early January 2020, and I get my hands on a draft of the letter. And two paragraphs in I was stopped cold. He writes, Climate change has become a defining factor in companys long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity, a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe were on the edge of a fundamental reshaping of finance. So what is he really getting at here? Hes saying for the very first time, as the largest investor in the world, that climate change has to become an integral part of the investing thesis for companies. And more importantly, that C.E.O.s and companies themselves now have to change and think about climate change. And if they dont, hes going to be pulling his money from them. Wow. You know, and he even says it explicitly in the letter, quote, We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them. Part of the Fink assessment is not simply that he is some kind of tree hugger do-gooder and wants to change the world though I think he may on a personal basis. But that he thinks that the world has shifted in a way, and the climate risk is now so real that it actually will have an economic impact in a way where as a fiduciary for pensioners and investors, that he needs to now push this in a way that he didnt think he had to before. So its not an act of advocacy. Its an act of kind of wise business. I think that he would say this is not driven by ideology. Its not driven by politics. Its driven frankly by money. He thinks that theres now a genuine business risk and cost To not doing anything. to not doing anything. And maybe even to these businesses, and therefore to these investors, these retirees. Exactly. So right. A tipping point to reach where you have to do something. Exactly. This is the first time that a major investor has genuinely taken on the issue of climate change and said, you know what, corporate America, I know you guys have been talking about this, thinking about this maybe, but now you actually have to do something about it. And if you dont do something about it, investors like me are going to do something about it ourselves. Which means that were either going to vote you out of your job, or were going to pull our money from you. Hes throwing down the gauntlet. And what are you thinking when you finish reading this letter? So Ill you something funny. I know when the letter is going to come out. Its about a week beforehand and I go to a meeting with Satya Nadella, the C.E.O. of Microsoft. As one does. As one does if youre a business reporter who covers companies like this. [LAUGHS] And he says that the company is about to reveal a sweeping climate change plan. Now of course, Im thinking in my head, this letter that Larry Fink is about to come out with, are they connected? Whats going on here? And I later find out, in fact, that Larry Fink had been talking to Microsoft. And I start to think to myself, you know what, I think something big is about to happen here. So what happens when this letter is actually delivered to all these C.E.O.s? Headlines are everywhere. Consumer news now, one of the biggest airlines in the world has committed to going carbon neutral starting next month. And literally within the next 21 days This is the decade for urgent action, for Microsoft and for all of us. company after company The tech giant said it has created a climate innovation fund which will invest $1 billion over the next four years. starts announcing new initiatives around climate. Jeff Bezos out with his next big idea. And then you have Jeff Bezos, the worlds richest man who runs Amazon, pledging $10 billion towards combating climate change. This global initiative will fund scientists, activists, NGOs, any effort that offers a real possibility to help preserve and protect the natural world. And presumably these are all companies in which BlackRock, run by Larry Fink, is an investor. In some cases, he may be the biggest investor. So youre seeing all these major corporations fall in line. But Im thinking to myself, how much of this is about really just placating investors like Larry Fink and frankly the public? Is it spin? Is it marketing? Is it greenwashing? Or is it genuinely going to have an impact on the climate? So I start to go through the plans individually one by one. And the answer is pretty interesting. Some of these pledges may have huge real impact. Others, not so much. And seeing which is which was fascinating. Well be right back. Andrew, tell me about these corporate climate plans that you looked at. So I went back to look at Microsofts plan and Amazons plan and Deltas plan. These are all big household brands that people know. Welcome aboard, and thanks for flying with Delta. Lets start with Delta because in many ways, it was the most surprising. Here is an airline. The entire business is based on fossil fuels. Right. It just is a carbon emitter. Thats what it is. Thats what its going to be for a very long time. And we are announcing that starting March 1, Delta Airlines will become the first airline to go fully carbon neutral on a global basis. Delta just came out and said theyre going to become carbon neutral. And a lot of people are going to do a double take. An airline becoming carbon neutral is Just to explain that term. It effectively means that theyre going to neutralize all of their carbon emissions. So their carbon emissions are going to somehow become zero. And Im thinking to myself, how is that going to happen? And whats the answer? Well, the answer is that when they say were going to become carbon neutral, its not that theyre going to stop flying and its not that theyre going to stop using fossil fuels. What it really means is buying carbon offsets. What does that mean? Well, you could invest in planting trees, which naturally stores carbon. Or you could invest in a wind farm. And so Delta says theyre going to spend a billion over 10 years. Thats real money $100 million a year. What are they going to buy? One of the things theyre going to try to do is invest in new biofuels. Theyre going to try to make their planes more fuel efficient. Theyre hoping to use some of that money to invest in technological innovations. But in the short run, given that that technology for the most part doesnt really exist, theyre basically going to be having to buy these offsets. So theyre not going to be making the carbon problem any better. Theyre not making it any better. But theyre not going to be making it any worse by offsetting it. At least theoretically, philosophically, thats the concept. OK. But theyre going to be flying just as many planes as they ever were. But given how much airplanes emit Its a huge amount. Its a huge amount. Huge amount. Thats potentially a huge plus just to go neutral from where we are today. But it sounds like Delta is not fundamentally changing the central source of emissions at the core of its business, which Im sure many people who care about climate think is what a company like Delta should do. Exactly. And by the way, what Deltas doing theyre the only airline in America thats announced anything like this. Now the real question is whether these offsets are real. When you really get deep into the world of carbon offsets, its like the Wild West. Sometimes companies are paying money genuinely to build a wind farm or plant a forest. But sometimes that forest is getting razed a year later, and some of the time theyre actually just paying money to prevent a forest from getting razed. Raising the question of whether it means anything at all when you say you have offset your carbon emissions. Exactly. So it sounds like carbon offsets, which is what Delta is relying on, may not be everything that we think it is. Its a financial construct in many ways. Its not a fundamental change. OK, so that is Delta. Which company is next? Lets talk about Amazon. The worlds richest man, Jeff Bezos, is jumping into the battle to address climate change. Lets take a look at his new effort by the numbers. Because Jeff Bezos just announced this massive $10 billion pledge to combat climate change. And we dont know completely about what that program is ultimately going to look like. But we do know what Amazon itself has pledged to do. And they have two big goals. One is to have 50 percent of all their shipments be carbon neutral by 2030, so 10 years from now. And presumably, that might involve things like what Delta did offsets. Well, they plan to do it a bit differently. What Amazon wants to do is change how much fossil fuels they actually use. And so theyre investing in 100,000 electric trucks, for example. So when you get your Amazon Prime package, instead of a truck coming up to the outside of your house thats powered by fuel, itll be battery powered. Got it. Theyre also investing in wind and solar so that their massive cloud computing operation, which involves tens of thousands of computer servers, is going to be powered by the sun and by wind. So, the way in which this is different from what Delta is doing, is rather than paying somebody else as Delta did to offset the airlines carbon emissions, Amazon is saying, we will meaningfully reduce carbon emissions by changing our own operations. Theyre genuinely trying to reduce their carbon emissions, the actual emissions in the air. By the way, some people will tell you that theyre not doing this fast enough. And, of course, Amazon is so big. It is so profitable. It touches so many different lives, carries so many different products that there will be people who ask, why isnt every component of that company changing to deal with climate? Absolutely. Look, there are people who are going to say, why doesnt Jeff Bezos take every dollar of profit that this company makes for the next two decades and use it to invest strictly in climate if this is really the single most important issue in the world? OK, so that leaves us with Microsoft. The scientific consensus is clear. The world has a huge carbon problem. And they have perhaps the most ambitious plan of all. They are carbon neutral today. Interesting. So Microsoft is already where Delta is hoping its going to be in 10 years. Exactly. But their big plan is to be carbon negative by 2030. Meaning that well reduce our emissions by half and remove from the atmosphere more carbon than we emit. Wow. Think of it a little bit like going on a diet or exercising, burning more calories than you take in. So that goes well beyond being carbon neutral, which is just basically zeroing out the amount you put in the world. Carbon neutral is stasis. Carbon negative is removing the carbon from the air. And even more ambitious, by 2050, they say they want to be carbon negative for their entire history starting in 1975. Well, how does that work? So they want to remove all the carbon that the company has put into the atmosphere since 1975. Wow. How are they going to do that? [LAUGHS] Im going to ask you how are they going to do that? Theyre going to invest a ton of money in forest, in wind, in solar. But really, what theyre hoping to do is invest in a breakthrough shoot-the-moon technology. Like what? Whats called carbon capture, the idea of removing carbon from the atmosphere and building machines that do this, that do what trees do naturally. And there are a number of efforts that are taking place around the world that are trying to build technology like this. But if were being honest, its not there yet. And thats what all of these companies are ultimately going to be after. Thats what the Jeff Bezos $10 billion investment is going to be about. Its going to be about trying to invent a technology thats going to change the game. Im shocked that the company that is promising the biggest transformation and the most ambitious plan, Microsoft, probably has the smallest carbon footprint, almost assuredly. I mean, if you compare Microsoft, a maker of computers and software, to a company that delivers millions of packages, or an airline company that has 1,000 planes in the air with all their emissions. So what does it tell you that the biggest polluters in this list seem to be doing the least ambitious climate plans? It tells me that its hard. In many ways for Microsoft, its easier. And if you really think about it, Microsoft has the biggest balance sheet. It has more money than these other companies. And, in fact More than Amazon? Yes, in terms of profits, absolutely. And in terms of thinking about all three of these companies, all of these are the market leaders, if you will. These are all very healthy companies. So in some ways, they can afford to experiment. They can afford to try to do this. Think about all of the other companies that dont have Billions of dollars in profit. billions of dollars in profits that they can even think about this. Its going to be a lot harder for them to catch up. So if the biggest companies in the economy, the ones with the money to experiment in this world, are doing kind of modest things when it comes to maybe Delta or Amazon, youre saying that should make us reflect on what less profitable companies are not even bothering to do. In other words, its only the very, very top of corporate America thats even Its only the top playing here. tier of corporate America that can afford to really go down this road right now. And the question is whether what they do forces the issue for everybody else. Whether their quote-unquote leadership unless youre cynical enough to believe this is all marketing, and there are a lot of people who do but to the extent that they go down this road, whether everybody else decides they have to follow. And weve talked about this in the past. This is a moment where governments are not exactly leaning on climate. They are looked to for leadership, but they dont seem to have their acts together. Look, in the United States, clearly, when it comes to climate change, we have an administration that doesnt believe that carbon emissions matter. But in the end, and I hate to say this, but all of these individual corporate efforts are on the margins. Because the reality is that China is emitting more carbon than the United States and Europe combined. And so Microsoft can do all it wants. Amazon can do what its doing. Delta can do what its doing. But none of these things on their own can change the game. Until big governments do things. Either until big governments literally dictate how everybody across the world is going to do it. Or, somehow every business decides that theyre going all in. Its interesting. In some ways, at this moment, corporations seem to be responding more lowercase d democratically to the problem of climate than perhaps some governments. Because theyre actually responding to what their consumers want. These companies arent dumb. If Microsoft, Amazon and Delta all know that what theyre going to do on a very individual basis cant fundamentally change the game, right we know that they cant change the game by themselves what are they really doing this for? And whats the answer, a little bit of altruism a little bit of marketing? Probably all of the above. Theres probably a little bit of marketing. Theres probably a little bit of maybe the investors are going look at me differently. I think there are executives that want to be leaders in this space. Theres no question that when Larry Fink wrote his letter or any of these companies thought about their policies, they were responding to consumers. They were responding to their employees. They were responding to investors. But the real question is whether a group of companies unto themselves can actually change the game. Whether their leadership is going to force every other company to follow them, or whether ultimately you need governments across the globe to create rules that every company follows. And until and unless that happens, I think theres going to be a lot of fair skepticism about what these companies are doing and why theyre doing it. And whether it matters. And whether it ultimately matters. Well, Andrew, thank you once again. Thank you, Michael. Well be right back. [CHEERING] And now Im delighted to bring you some pretty good news. Heres what else you need to know today. I think all of you know we won the popular vote in Iowa. [CHEERING] We won the New Hampshire primary. [CHEERING] And according to three networks and the A.P., we have now won the Nevada caucus. [CHEERING] Senator Bernie Sanders has won the Nevada caucuses by a wide margin Bernie, Bernie, Bernie! positioning himself as the clear front-runner in the race for the Democratic nomination. In Nevada, we have just put together a multigenerational, multiracial coalition, which is going to not only win in Nevada, its going to sweep this country. [CHEERING] With 60 percent of precincts reporting, Sanderss lead was more than double his nearest competitor. Joe Biden was in second place, followed by Pete Buttigieg, then Elizabeth Warren. The Times reports that given the large number of moderate candidates left in the race, it appears increasingly unclear whether any single one of them can catch up with Sanders. Which is another reason why were going to win this election. [CHEERING] And I congratulate Senator Sanders on a strong showing today, knowing that we celebrate many of the same ideals. But before we rush to nominate Senator Sanders in our one shot to take on this president, let us take a sober look at what is at stake. In a speech from Las Vegas, one of those moderates, Pete Buttigieg, cautioned Democratic voters about what he said was the risk of nominating Sanders. Senator Sanders believes in an inflexible, ideological revolution that leaves out most Democrats not to mention most Americans. [CHEERING] Thats it for The Daily. Im Michael Barbaro. See you tomorrow. Alan Rappeport reported from Riyadh, Saudi Arabia, and Lisa Friedman from Washington. Jeanna Smialek contributed reporting from Washington. is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters in the era of President Trump. He previously worked for The Financial Times and The Economist. reports on federal climate and environmental policy from Washington. She has broken multiple stories about the Trump administrations efforts to repeal climate change regulations and limit the use of science in policymaking.