COP26: Rishi Sunak vows to make UK ‘world’s first net-zero financial centre’
Chancellor Rishi Sunak has spoken of the UK's vision to help "rewire the global financial system fir net-zero" at the inance day of COP26 outlining plans on sovereign green bonds and corporate climate disclosures.
As always, the devil is in the detail – and Sunak has faced much scrutiny from the green economy since his Budget speech last week, which included cuts to air passenger duty and provided just £9m of extra funding for nature. However, the Chancellor set the scene this morning (3 November) for a busy finance-themed day at COP26, following two days of world leaders’ summits.
Sunak has provided an update on the Glasgow Financial Alliance for Net-Zero (GFANZ), which launched in April in a drive to unite the global financial sector in transitioning to net-zero portfolios by 2050. Members are required to transition their portfolios in line with the Paris Agreement and are being pushed to work towards 1.5C rather than 2C temperature pathways.
The Alliance now represents more than $130trn of assets under management, around 40% of the world’s total financial assets, up from $90trn at the start of October. These assets are managed by 450 firms across 45 nations, from all parts of the financial industry.
It remains unclear whether the measures announced by Sunak in recent weeks, compounded by those due to be announced by the end of the year, will result in the delivery of GFANZ’s recommendations for closing policy gaps which, at present, mean that high-carbon financing remains profitable. One recommendation which has already fallen through is for the G20 member nations to commit to ending fossil fuel subsidies; this weekend’s G20 meeting resulted in weak agreements in this space.
There is also the question of the small print regarding the GFANZ. Groups including Reclaim Finance are arguing that Sunak’s top-level update does not give the full picture, as the bulk of assets managed by the Alliance are yet to be managed in a manner consistent with net-zero by 2050. Moreover, the Alliance is using its own temperature pathway methodology. The UN has stated that it will develop its own standard for checking non-state actors’ commitments, but this is not yet finalised.
Reporting, disclosure and the just transition
One of the GFANZ recommendations is the introduction of a mandate for all large businesses and public enterprises to develop net-zero transition plans by the end of 2024, which it says should be supported by all major economies with a net-zero target in law.
Sunak has said today that “has a responsibility to lead the way” on climate disclosure. He has reiterated the recent publication of the Roadmap to Sustainable Investing, which confirms that transition plans will be mandated for large firms in high-emitting sectors. From 2023, large businesses in high-emitting sectors will need to meet this requirement. Plans for a further rollout are yet to be confirmed, so it remains to be seen whether the GFANZ will get its wish.
Sunak also confirmed that the UK Government has developed a science-based ‘gold-standard’ verification scheme for the plans, to safeguard against greenwashing. This scheme has been drawn up in collaboration with industry representatives, academics, regulators and civil society groups.
Last week, the Treasury confirmed that large businesses will be required to report climate-risk-related information in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) from April 2022. Dates of 2022 and 2023 had been floated and, ultimately, the more rapid pathway was chosen.
Spotlight on the $100bn pledge
A key talking point at COP26 this week will be the long-standing but yet-to-be-delivered international climate finance from OECD nations to developing nations, of $100bn in climate finance annually. The maximum provided in a single year to date has been $80bn and, due to Covid-19, wealthy nations believe the $100bn milestone will not be met this year.
Sunak has said that the full $100bn will be provided in 2023, as per the roadmap drawn up by the UK Government in collaboration with Canada and Germany. He has emphasised the importance of the private sector in adding trillions to these billions and announced a new Climate Investment Funds Capital Markets Mechanism to help connect capital provision and demand.
In terms of Government money, Sunak has pledged that all returns from the UK’s contributions to Climate Investment Funds (CIFs) will be used for the issuance of further green bonds. The Government issued its first green gilts this year – two packages of £10bn and £6bn respectively. The potential for further issuance, solely from returns from the CIFs, will be £22-51bn.
Sunak’s overarching vision is for the UK to become the world’s first net-zero financial centre, with all portfolios aligned with the net-zero transition by 2050 at the latest.