Civil society looks to G20 and Cop26 for climate capital requirements

As scientists warn that humanity is running out of time to keep global heating below dangerous levels, climate campaigners are looking to the upcoming G20 summit and Cop26 meeting for movement on key financial issues. They are hoping for progress on mandatory climate-related disclosure, mandatory alignment with Paris Agreement targets, and climate capital requirements for financial institutions.

The timing of this weekend’s G20 summit and the start of the pivotal UN climate talks on Monday has put efforts to address the climate crisis firmly centre stage.

G20 finance ministers and central bank governors have already identified climate change and biodiversity loss as “urgent priorities” for the group, and have acknowledged that sustainable finance is crucial for an orderly and just transition towards sustainable economies. However proposed actions to mitigate climate risk have so far been largely confined to support for further research and analysis.

In contrast, climate campaigners have called for urgent and concrete action to avoid a ‘climate Lehman moment’, a reference to the 2008 collapse of Lehman Brothers that triggered the last global financial crisis. In an open letter released yesterday, 111 civil society organisations called on both G20 and Cop26 participants to implement a ‘one for one’ capital requirement rule for fossil fuel lending and investment.

The proposal, endorsed by over 50 leading economists, would require banks and insurers to increase the capital they hold against fossil fuel assets to 1250%. As a result, they would be forced to fund any investments in fossil fuel projects from their own funds and thus protect depositors and policyholders from exposure to assets that are likely to become stranded.

G20 members are responsible for 80% of all greenhouse gas emissions and form the overwhelming majority of the Basel Committee on Banking Supervision (BCBS), the international body responsible for banking regulation. The BCBS has already proposed a 1250% ‘one for one’ risk weighting for banks exposed to crypto-assets such as bitcoin, prompting calls for the same prudential measure to be applied to fossil fuel exposures.

Climate advocates focusing on central banks and financial policy are also looking to Cop26 for broad agreement on rules for climate-related financial disclosures and for requirements that banks align their activities with the Paris Agreement. Movement towards mandatory climate-related disclosures is likely, and is already supported by G7 finance ministers and central bank governors.

However, rules requiring financial institutions to align their planning and activities with the Paris Agreement are less certain, although there is hope for movement in this direction. A coalition of finance ministers from 65 countries has explored ways of supporting private financial sector initiatives to align with the Paris goals and has recommended coordination with G20 and Cop26 organisers in furthering these efforts. Operational frameworks for such alignment have been proposed by both civil society and academic groups.