The Governor of the Bank of England, Mark Carney, launched the COP26 Private Finance Agenda at the Guildhall in London today alongside COP26 President Alok Sharma. The 26th UN Climate Change Conference of the Parties (COP26), due to be held in Glasgow 9-12 November 2020, will be the biggest international summit the UK has ever hosted; bringing together over 30,000 delegates including heads of state, climate experts and campaigners to agree coordinated action to tackle climate change – and Carney had some strong words for stakeholders.
“Achieving net zero will require a whole economy transition,” he emphasised. “Every company, every bank, every insurer and investor will have to adjust their business models. This could turn an existential risk into the greatest commercial opportunity of our time.”
However, he warned that the scale of the challenge was huge – with US$3.5 trillion of infrastructure investment needed every year alone.
The event was hosted by the Lord Mayor of London, Alderman William Russell, and kicked off with Sir David Attenborough setting out the scale of the climate challenge.
“It is now up to us to put before the nations of the world what needs to be done…unless we do something now, it becomes insoluble,” said Sir David in his keynote speech.
The end goal of the COP26 Private Finance Agenda is for every professional financial decision to take climate change into account, creating a framework for reporting, risk management and returns that will embed these considerations and help finance a whole economy transition. It focuses on three Rs: reporting, risk management, and return, that are designed to help unlock private financial flows – supported by a targeted US$100 billion from the public sector.
A key element of the strategy is the widespread implementation of Task Force on Climate-related Financial Disclosures (TCFD), with Carney promising to work with the authorities towards making climate reporting mandatory. The TCFD already has backing from every major systemic bank, nine out of the 10 top global asset managers, all the credit rating agencies, all major accounting firms and most shareholder advisory firms. In January 2020, the International Business Council of 140 CEOs published a report on a common set of metrics signed up to by its members, which included TCFD, while the UN PRI has insisted that all its 2,275 members make TCFD disclosures or risk expulsion.
The second step of the agenda focuses on risk management, which requires companies to go beyond static disclosures, such as their current carbon footprint, and move towards dynamic disclosures, such as their plans to manage future emissions. “Risk management means assessing the forward-looking disclosures to judge the resilience of firms’ strategies to the transition,” explained Carney. To that end, he confirmed that the Bank of England would become the first regulator to introduce stress testing for major banks and insurers against different climate pathways, which is expected to demonstrate how major financial firms expect to adjust their business models in response to the climate emergency, and expose those that are failing to take appropriate action. The stress test will build on the scenarios developed by the Network for Greening the Financial System (NGFS), a coalition of over 50 banks representing half the world’s emissions. NGFS is expected to make their scenarios publicly available from Q2 in order to allow anyone to access them to test their own strategic resilience.
Carney also criticised the inadequate current approach to ESG disclosure, noting that “we need 50 shades of green” to catalyse and support all companies to net zero and warning that “companies, banks, insurers, pension funds, and investors will be increasingly expected to develop and disclose their transition plans,” and in particular urging the providers of capital to disclose the percentage of their assets that comply with TCFD and/or are net zero-aligned.
“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,” concluded Carney. “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.”
COP 26 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.”
In a big today for climate progress in the UK, UK Court of Appeal also today ruled the UK Government’s aviation policy as unlawful on climate grounds, effectively stopping Heathrow expansion; while the Department for Environment, Food and Rural Affairs moved forward with the second reading of its Environmental Bill in Parliament, designed to establish a new Office for Environmental Protection as an independent watchdog.
Finally, Sir Edward Davey, the Liberal Democrat MP for Kingston and Surbiton (and former Energy Secretary), formally asked Prime Minister Boris Johnson to meet with China’s President Xi, Indian Prime Minister Modi and US President Trump to secure global action on climate change.
“The UK should lead, not follow,” he said.