Viewpoint: The tragedy of the horizon, act II – from promise to peril

With his landmark “Tragedy of the Horizon” speech a decade ago, Bank of England governor Mark Carney elevated climate change from an environmental concern to a systemic financial risk. That speech also announced the Task Force on Climate-related Financial Disclosures (TCFD), whose 2017 recommendations set a global benchmark for voluntary reporting and inspired mandatory regimes worldwide.

Carney’s “tragedy” lay in the mismatch between the long timescales of climate impacts and the short timeframes used by prudential supervisors, politicians and corporate managers.

If action is delayed until climate risks finally enter the horizons of these decision-makers, the damage will be catastrophic. Better information, he suggested, could help “break” this tragedy by starting a virtuous circle: investors would price risks earlier, policymakers would act more boldly, and innovators would accelerate the transition.

The disclosure revolution Carney set in motion has transformed the quality, comparability and scope of climate information. Yet a decade on, climate action remains dangerously insufficient, largely because of that very focus on disclosure.

It is worth recalling that Carney never claimed disclosure alone would solve the problem. He assumed it would catalyse change alongside credible policies and technological progress. Yet governments largely confined their efforts to disclosure regimes, often focused on financial actors rather than real-economy emitters, while failing to tackle deeper structural shifts. Fossil fuel subsidies remain pervasive, carbon pricing too weak to shift behaviour, and industrial decarbonisation pathways, in most jurisdictions, little more than blueprints.

If over the decade greenhouse gas emissions have grown more slowly than economic output, it is primarily due to technological advances. Efficiency gains, often achieved without government incentives, have done most of the work, while grid decarbonisation — driven by cheaper renewables and, in some jurisdictions, supportive policies — has played a supporting role.

The disclosure-led approach rested on a supply-side belief, echoed in Carney’s framing, that better information would allow markets to correct the course of climate change with minimal state intervention. That belief was politically expedient, sparing policymakers costly choices.

It allowed them to postpone phasing out fossil fuel subsidies and strengthening carbon pricing — measures that would fundamentally alter economies still tethered to fossil fuels. It spared them the need to mobilise large-scale public investment to decarbonise production and consumption infrastructure. And it postponed a reckoning with the consumption patterns of the top decile of global emitters and associated debates on climate equity.

“Better measurement can support better management — but only if paired with the right incentives and policies”

Frédéric Ducoulombier, programme director at the EDHEC Climate Institute

But elevating disclosure into a substitute for substantive action carried risks: once they became the centrepiece of climate policy, they could be portrayed as instruments of regulatory overreach and political futility.

The backlash, when it came, was fierce.

Fossil-linked incumbents, threatened by expanding disclosure obligations, mounted lobbying, disinformation and litigation campaigns. With the transition still ahead and its beneficiaries not yet identifiable, power remained with status quo actors. Under sustained pressure, regulators diluted proposals, delayed implementation and are now rewriting newly adopted texts.

In the US, the first federal climate disclosure rules were suspended and, under Republican leadership, will not be defended in court. In the EU, implementation of trimmed European Sustainability Reporting Standards (ESRS) has been postponed, and their breadth and scope are being challenged under “burden reduction” agendas.

And the backlash has also shifted the ideological and geopolitical battle over sustainability reporting: the debate is no longer about its essence but about its existence. Until recently, it centred on whether reporting should address both financial risks from, and corporate impacts on, sustainability — the “double materiality” approach espoused by the EU — or be limited to financially material risks under a narrow definition of investor expectations, as championed by the IFRS Foundation, the leading accounting standard setter.

Now, some groups that aligned with the IFRS Foundation to oppose double materiality call for an end to sustainability reporting, and the chair of the Securities and Exchange Commission (SEC) has threatened to undermine the Foundation’s core financial reporting standards if it diverts resources to support the sustainability disclosure framework that is the legacy of the TCFD.

Paradoxically, this occurs just as improved stress-testing models deliver better assessment of climate risks and emerging probabilistic scenario tools enable credible pricing of assets, creating the potential for financial institutions to integrate and mitigate them more effectively, but only if reliable data continue to flow.

Carney concluded his speech by suggesting that better information could underpin a virtuous circle of improved risk understanding, investor pricing, policy decisions and a smoother transition. Better measurement can support better management — but only if paired with the right incentives and policies.

If the next decade is to look different from the last, we must preserve sustainability reporting and invest further in research to better integrate climate risk into financial decision-making. But regulators must also reshape prudential frameworks to reward financial institutions for managing climate risks and financing the transition.

Above all, governments must deliver clear, credible and durable policy signals to the real economy through regulation, taxation, public spending and investment, to close the virtuous circle Carney envisaged. Without such action, neither markets nor societies can transition at the speed and scale required.

Frédéric Ducoulombier, is programme director, climate regulation and policies, at EDHEC Climate Institute, EDHEC Business School