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Global Climate Politics: Pressure on Finance Sector increases ahead of COP26 in Glasgow next November

Summary

The objective for the private finance work for COP26 is simple: ensure that every professional financial decision takes climate change into account. The finance sector is considered to be the critical lever to bring about the achieving the objective agreed in the Paris Agreement to limit global temperature increases to below 2°C from pre-industrial levels. Required is a whole economy transition — every company, bank, insurer and investor will have to adjust their business models, develop credible plans for the transition and implement them.

"We won’t shrink our way to net zero, we need to invest our way there." Mark Carney, UN Special Envoy for Climate Action and former Governor Bank of England

What is it about

The next global Climate Summit (officially called COP26, short for the 26th Conference of Parties) will take place in Glasgow, Scotland, next November. It will be the culmination of an unprecedented political climate-frenzy. At the center of the attention: the Finance Sector. The creation of the "COP26 Private Finance Hub", led by Mark Carney in his capacity as UN Special Envoy, will focus on building a system that mobilises private finance to support the re-engineering of our economies for net-zero.

The finance sector is considered to be the critical lever to bring about the achieving the objective agreed in the Paris Agreement to limit global temperature increases to below 2°C from pre-industrial levels.Required is a whole economy transition — every company, bank, insurer and investor will have to adjust their business models, develop credible plans for the transition and implement them. In recognition of the scale of the task, 125 countries, including half the G20, have now committed to net zero by 2050 at the latest.

Why is this important

After almost 30 years since the Rio Conference in 1992 during which business was encouraged to act in "enlightened-self interest", the regulatory climate has shifted: Pressure on the finance sector is increasing rapidly. The recent publication by the Carney-Commission titled "BUILDING A PRIVATE FINANCE SYSTEM FOR NET ZERO - Priorities for private finance for COP26" provides an important overview of what finance can expect. The proposed framework will be at the center of the Glasgow-conference and includes:

  • Reporting: improving the quantity, quality and comparability of climate-related disclosures by implementing a common framework built on the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations.

  • Risk management: ensuring that the financial sector can measure and manage climate-related financial risks.

  • Returns: helping investors identify the opportunities in the transition to net zero and report how their own portfolios are aligned for the transition.

  • Mobilisation: increasing private financial flows to emerging and developing economies, by connecting available capital with investable projects and encouraging new market structures.

The Globalance View

Covid has accelerated the focus on sustainable investing and brought it from the periphery to the mainstream. It is now one of the top items in terms of strategic issues for financial institutions.

It has long been one of Globalance's beliefs that the various global transitions (e.g. energy, mobility, food, etc.) are enormous commercial opportunities. Investments into renewable energy infrastructure alone are forecast to be doubling every year and will do so for 30 years. Hence, we welcome these efforts to created the transparency and data-fundament needed.

We observe with concern, however, that many companies who have been quick to publish their net-zero-plans, lack action in the scale needed. It will fall to relevant and legitimate stakeholders (e.g. shareholders, regulators, civil society) to mount a robust level of scrutiny to hold both business and finance to account.

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