COP26 – What does it hold for the financial services sector?

Rishi Sunak, UK Chancellor, opened the third day of this conference with an ambitious commitment for the UK to have the world’s first net zero aligned financial centre and he encouraged action from public and private actors to support the 1.5 degrees C target with a combination of public finance commitments, mobilising private finance and changes in the global capital markets to support green finance.

Key points included:

• The G20 commitment to provide $100 billion to developing countries by 2023 (or sooner, if possible) and a commitment to invest $500 billion over the next 5 years. To help meet this target, the UK Government is supporting a new Capital Markets Mechanism, which aims to issue billions of new green bonds to fund renewable energy in developing countries.
• The Glasgow Finance Alliance for Net Zero, a coalition of over 450 banks, insurers, asset managers and other financial institutions from 45 jurisdictions, have committed over $130 trillion to invest in the net zero transition. Mark Carney, UN special envoy on climate finance, said that this commitment amounted to 40 per cent of assets under management globally.
• There is a need to rewire the entire global financial system to achieve net zero. This requires global efforts on better and more consistent climate data, sovereign green bonds, mandatory sustainability disclosures, proper climate risk surveillance, and stronger global reporting standards.
• As announced in the UK Government’s October 2021 ‘Roadmap’ and set out further in HM Treasury’s press release and fact sheet, the UK is taking steps on this point, by requiring certain financial institutions to prepare detailed transition plans by 2023 with a newly created task force to determine the content required for those plans.
• International bodies are taking steps to address challenges faced by the financial sector. The IFRS has established a Sustainability Standards Board, through the Network for Greening the Financial System 38 central banks will undertake climate stress testing of the largest financial institutions, and TCFD has published guidance on climate metrics and transition plans.

Comment 

There is clearly a long way to go in agreeing and implementing climate commitments but, taken together, the commitments of financial institutions, international bodies and some governments are significant and may encourage others to join, for example the organisations holding the remaining 60 per cent of global assets under management.

In the UK, it will be interesting to see the exact scope of the new obligation to produce a net-zero transition plan when the Government brings forward legislation to deliver this.