COP26: UK firms must plan for low-carbon future

• Chancellor to set out plans for UK to be the world’s first net zero aligned financial centre, calling for other countries to follow suit
• Over $130 trillion – 40% of the world’s financial assets – will now be aligned with the climate goals in the Paris Agreement, thanks to climate commitments from financial services firms
• New UK climate finance projects funded from the UK’s international climate finance commitment will help developing countries to fund green growth and adapt to the changing climate

The Chancellor will set out the UK’s plans to become the world’s first net zero aligned financial centre and welcome “historic” climate commitments from private companies covering $130 trillion of financial assets as he hosts Finance Day at COP26 today (3 November 2021).

These commitments will help to create a huge pool of cash that could fund our net zero transition, including the move away from coal, the shift to electric cars, and the planting of more trees.

Convening the largest ever meeting of finance leaders on climate change, Rishi Sunak will set out the UK’s “responsibility to lead the way” and unveil a fresh push to decarbonise our world-leading financial centre.

Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050.

To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups.

In his opening keynote at Finance Day, Mr Sunak will hail the progress made to “rewire the entire global financial system for net zero” under the UK’s leadership of COP and reveal that over $130 trillion – around 40% of the world’s financial assets – is now being aligned with the climate goals in the Paris Agreement, including limiting global warming to 1.5C. 

These commitments come from over 450 firms from all parts of the financial industry, based in 45 countries across six continents, and have been delivered through the Glasgow Financial Alliance for Net Zero (GFANZ), which was launched by the UK to harness the power of the financial sector in the transition to net zero.

The UK has also worked as chair of the G7, and in partnership with other G20 countries, to ensure all economic and financial decisions take the risks of climate change into account. The UK has convened over 30 advanced and developing countries from across 6 continents and representing over 70% of global GDP to back the creation of a new global climate reporting standards by the IFRS Foundation to give investors the information they need to fund net zero.

Celebrating this progress, the Chancellor will urge financial firms to “mobilise private finance quickly and at scale” and call on governments to enact bold climate policies to take advantage of these enormous financial resources.

Reiterating the importance the UK COP Presidency has placed on getting finance to the most vulnerable countries, Mr Sunak will also highlight that the $100 billion climate finance target will be met by 2023 and urge developed countries to boost their support to developing countries – including by helping them tap into the trillions of dollars committed to net zero by the private sector.

The UK will seek to address barriers to finance faced by developing countries with a series of new green initiatives funded from its international climate finance (ICF) commitment, including £100 million to respond to recommendations from the UK co-chaired Taskforce on Access to Climate Finance to make it faster and easier for developing countries to access finance for their climate plans.

In total, the UK will spend £576 million on a package of initiatives to mobilise finance into emerging markets and developing economies, including £66 million to expand the UK’s MOBILIST programme, which helps to develop new investment products which can be listed on public markets and attract different types of investors.

And in a further advance towards the $100 billion goal, the Chancellor will announce the launch of an innovative new financing mechanism – the Climate Investment Funds’ Capital Markets Mechanism (CCMM) – that will boost investment into clean energy like solar and wind power in developing countries.

The UK is already the biggest donor to the multilateral Climate Investment Funds, having contributed £2.5 billion, and will now give the returns from its investments (known as reflows) to CCMM. This new fund will use reflows to help it issue green bonds worth billions of pounds in the City of London – the world’s leading green finance centre – and could leverage an extra $30-70 billion from other sources for specific clean energy projects.

Janine Hirt, Chief Executive Officer, Innovate Finance said: “As the voice of UK FinTech, we passionately support the development of the UK as the first net zero aligned financial centre. 

“Net Zero transition will be driven by finance and capital markets and it will be enabled by technology and data. As a leading global centre for financial services and for financial technology and innovation, the UK can and should lead the way in rewiring the entire global financial system for net zero.” 

Dr Ben Caldecott, Director, UK Centre for Greening Finance and Investment (CGFI) Chief said: “This is huge. The world’s largest international financial centre will become the world’s first net zero-aligned financial centre.

“This is underpinned by world-leading regulation and the economy-wide adoption of net zero transition plans. This will spur demand for green finance and accelerate decarbonisation, not just in the UK but wherever UK firms do business.

“This will make a real difference and means the UK financial services sector will play an even larger role in providing the capital and financial services required to deliver net zero globally.”

“The UK Centre for Greening Finance and Investment is excited to act as the secretariat, together with E3G, for the new Transition Plan Taskforce to develop a ‘gold standard’ for transition plans and associated cutting edge metrics.

“We are the UK’s national centre established to accelerate the adoption and use of climate and environmental data and analytics by financial institutions internationally.”

Julie Page, Chief Executive Officer, AON said: “We welcome and support the Chancellor’s plans for the UK to be the world’s first net zero aligned financial centre.

“All industries have an important role in helping to achieve this goal and through Aon’s own 2030 net-zero commitment, we will contribute to this historical commitment and help lead the way towards a net zero economy.”

Dr Rhian-Mari Thomas OBE, Chief Executive, Green Finance Institute said: “Today marks the day that green finance has reached a point of critical momentum. The amount of capital committed to the transition to net zero has reached unprecedented levels.

“The task before us now is to come together in radical collaboration to unlock investment opportunities at speed and scale so we can channel this wall of capital into real economy outcomes that not only positions the UK as the world’s first net zero financial centre but also delivers a just and resilient net-zero global economy”

Kay Swinburne, Vice Chair of Financial Services, KPMG UK said: “This announcement will provide the financial services industry with a valuable set of unified metrics to measure progress towards decarbonisation and it is brave to put a gold standard in place for all companies raising funding.

“We’re pleased to see the UK lead by example by not only establishing the GFANZ initiative, but also expanding private sector commitments and supporting a science based approach to reporting standards.”

James Alexander, Chief Executive, UK Sustainable Investment and Finance Association (UKSIF) said: “We warmly welcome the Chancellor’s ambition to make the UK the world’s first net-zero aligned financial services centre.

“As the first major economy to legislate to cut emissions to net zero by 2050, this is a natural step in the UK’s climate leadership journey and recognises the central role of the sustainable finance sector in addressing the climate crisis.

“UKSIF and our members look forward to actively engaging in these next steps, particularly helping to build a shared definition of a good quality transition plan and more broadly a net-zero finance sector.

“Government and regulators should work closely with the financial services industry to identify the policies and actions required to progress our sector towards this world-leading ambition.”

Investing to tackle climate change

The crucial role of private investment in efforts to achieve net zero will be set out by First Minister Nicola Sturgeon later today (Wednesday) as part of Finance Day at COP26.

The First Minister will join the Mayor of London Sadiq Khan at the opening session of a Green Investment Showcase to detail how private investors can help drive the green industries of the future.  

The First Minister will emphasise Scotland’s role as a world leader in sustainable industries and highlight the associated investment opportunities that exist, including through Scotland’s Green Investment Portfolio – now valued at £2 billion and which is expected to reach £3 billion in 2022.

The Showcase, hosted by Scottish Enterprise, will be attended by international and UK-based institutional investors, along with climate and clean tech companies seeking investment.

The First Minister said: “COP26 provides what is possibly our best chance to advance the societal and economic change that is demanded by the climate emergency, delivering lasting action towards net zero and a climate-resilient future.

“By grasping the opportunities provided by green industries and supply chains, we can create the good green jobs of the future and secure a just transition away from fossil fuels.

“The role of private capital is fundamental to achieving this and governments must do what they can to channel investment into areas supporting transformational change.

“Through our Green Investment Portfolio, which is already valued at £2 billion, the Scottish Government highlights a range of exciting, commercially assessed investment propositions to investors and showcases businesses in Scotland as world leaders in innovative green industries of the future.”

Mayor of London Sadiq Khan, said: “COP26 is a landmark moment in the fight against climate change. We need to take bold action now or we will face catastrophic consequences in the years to come.

“Climate action and economic growth must go hand in hand – in London I’m investing in green technology which generates good quality jobs, for Londoners and across the UK. Turning the tide on climate change will require record investment and coordinated action from everyone – cities, businesses, governments and communities.

“That’s why I am committed to working with the Scottish Government in pioneering green investment and I’m proud to announce that I will be committing over £30 million in additional funding in London which will help encourage up to £150 million of private investment in low carbon projects and create jobs that will help achieve our 2030 net zero target.”