'Investing for net-zero must go mainstream': COP26 finance strategy unveiled
The UK has published its COP26 strategy to help private finance support a global economic transition to net-zero emissions, with a heavy focus on exploring mandatory reporting requirements for climate-related data.
Unveiled at a launch event hosted by the Lord Mayor of London at Guildhall, and preluded by a keynote address from Sir David Attenborough, the COP26 finance strategy outlines how reporting, risk management and innovative finance models will be prioritised to deliver an economic transition to net-zero emissions.
The strategy namely outlines ambitions for the private sector to redefine Task Force on Climate-related Financial Disclosures (TCFD) data disclosures in order to increase the quantity and quality of reporting with a view to agreeing “potential paths to mandatory reporting at domestic and international levels”.
Mark Carney, finance advisor for the COP26 climate conference taking place in Glasgow at the end of the year, said: “Given the scale of the climate challenge and the rising expectations of our citizens, 2020 must be a year of climate action where everybody’s in, and that includes the world’s leading financial centre.
“To identify the largest opportunities and to manage the associated risks, disclosures of climate risk must become comprehensive, climate risk management must be transformed, and investing for a net-zero world must go mainstream.”
The strategy seeks to develop “open-source, business-relevant reference scenarios” for regulators, financial firms and businesses to test climate resilience investment strategies and establishing a coalition of central banks that are “committed to issuing guidance on risk management and running stress tests”. A metric for how aligned an investment portfolio is with the needs of the Paris Agreement will also be explored.
Mandatory stress tests
Carney has just ended a six-and-a-half-year stint as Governor of the Bank of England. In his role, Carney was influential in forming the TCFD alongside former New York Mayor Michael Bloomberg.
Since the TCFD’s inception in 2015, the Taskforce has published recommendations that call on companies to include impacts of different scenarios – including the 2C pathway of the Paris Agreement – and what this would mean for businesses. Efforts to disclose climate-related data aligned to the TCFD's recommendations have increased by more than 50%, but concerns remain that companies aren't providing enough information to inform the investor community.
More recently, Carney and the Bank of England have unveiled plans to introduce a mandatory and uniform climate risk test for major banks and insurers in 2021.
New COP26 President and Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma added: "This is a pivotal year for the planet as we raise our ambition on emissions reductions and build an economy resilient to climate change. But this is not just about the work of individual governments. We are calling on action from everyone - businesses, civil society and each part of the global financial system to meet the Paris Agreement goals.
“COP26 is also a critical moment to enhance support for developing countries. We are determined to work together to deliver a prosperous, zero-carbon future for all."
Commenting on the strategy launch, Gudrun Cartwright, environment director at Business in the Community, a charity and The Prince’s Responsible Business Network, said: “Financial services is one of the biggest sectors of the global economy and the transition to net-zero will be impossible without its full engagement. A paradigm shift in the way capital is allocated and deployed can bring decisive change and accelerate the growth of the green economy.
“The sooner the global financial system embraces change the more certain its future will become, and markets want nothing more than certainty. COP26 is focusing a lot of minds and that’s encouraging given that the clock is ticking faster than ever on climate change. The world’s leading financial centres, such as the City of London, must lead the way in the fight to achieve a zero-carbon future."