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‘Grounds for optimism’ as financial firms back net zero finance

Out-Law News | 03 Nov 2021 | 6:03 pm | 2 min. read

Resources committed by financial firms to tackle climate change and transition the global economy to ‘net zero’ emissions by 2050 now stand at over $130 trillion, according to an industry coalition led by former Bank of England governor Mark Carney.

Members of the Glasgow Financial Alliance for Net Zero (GFANZ) will now adopt their own interim and long-term targets for achieving net zero by 2050 at the latest, and have committed to publishing annual progress reports. GFANZ has over 450 member firms from 45 countries including banks, insurers, pension funds, asset managers and stock exchanges.

GFANZ has now appointed US businessman Michael Bloomberg to co-chair the network with Carney as well as Mary Schapiro, former chair of the Securities and Exchange Commission (SEC) and head of the secretariat for the Taskforce on Climate-related Financial Disclosures (TCFD), as vice-chair. GFANZ is also establishing a permanent secretariat with a presence in Europe, the Americas, Africa and Asia, which will report periodically to the G20’s Financial Stability Board.

Project finance expert Michael Watson of Pinsent Masons, the law firm behind Out-Law, said: “The next step will be to move the concept to practical reality”.

“A real watershed moment for the acceleration toward enforceable requirements for corporates to not only have targets and objectives but clearly auditable and measurable transition plans which are monitored and enforced by their lenders and investors has been on the cards for a while, but there is increasing certainty over these commitments,” he said.

“As with all of the significant announcements at COP26 the challenge will be the delivery of the pledges made and ensuring that in delivery the outcomes expected – decarbonisation and adaptation – materialise. There are grounds for optimism on the former as the weight of resource and expertise of the global financial community is, through the GFANZ, available and directed toward delivery. More effort and resource will be required. In the words of Christiana Figueres at last night’s TB Macaulay Lecture: ‘It will take all of us working together, pushing and pulling each other, with honesty and respect to accelerate the urgent solutions’,” he said.

Christiana Figueres was executive secretary of the UN Framework Convention on Climate Change (UNFCCC) from 2010 to 2016, during which time the Paris Agreement was concluded. She was speaking at the 43rd TB Macaulay Lecture, hosted by the Macaulay Trust and the James Hutton Institute.

Watson Michael

Michael Watson

Partner, Head of Climate and Sustainability Advisory

There are grounds for optimism as the weight of resource and expertise of the global financial community is, through the GFANZ, available and directed toward delivery

The most frequently-cited estimates put the total needed to fund the transition to net zero by 2050 at between $100trn and $150trn. These estimates include those by the International Energy Agency (IEA), International Renewable Energy Agency (IRENA) and BloombergNEF. In a progress report (104-page / 3.4MB PDF), published today, GFANZ said that the private sector could deliver 70% of that total, with member firms now representing $130trn of private capital – up from $5trn at the start of the UK and Italian COP presidency.

Participating firms have committed to setting “high ambition, science-based” targets for achieving net zero emissions in their investment, lending, underwriting and financial services by 2050, which they will review every five years. Membership of GFANZ also commits them to setting interim targets, establishing board accountability and providing annual reports on their progress. According to the report, over 90 of GFANZ’s founding members have already set short-term targets for 2025 or 2030.

Carney said: “The architecture of the global financial system has been transformed to deliver net zero”.

“We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account. Only this mainstream focus can finance the estimated $100trn of investment needed over the next three decades for a clean energy future. To seize this opportunity, companies must deliver robust transition plans and governments set predictable and credible policies. This will give finance the confidence to invest,” he said.

Speaking at COP26, UK chancellor Rishi Sunak announced plans to make the UK the “first-ever net zero aligned global financial centre” backed by climate data, green bonds and mandatory climate-related disclosures. The UK intends to introduce a new requirement for financial firms and public listed companies to publish ‘transition’ plans setting out how they will reduce the emissions they respectively finance or are responsible for, although the policy will not require them to commit to net zero themselves.