Cop26: Sunak touts mandatory transition plans for UK firms

November 3, 2021|Written by David Clarke|Bank of England, European Central Bank

Rishi Sunak, UK chancellor, told the Cop26 summit on Wednesday that his government will make the country “the world’s first net-zero aligned financial centre”, touting its commitment to require most big firms and financial institutions to publish net-zero transition plans.

A new taskforce will be established to set out requirements for the plans, composed of industry and academic leaders, regulators, and civil society organisations. The group is due to report at the end of 2022 and, once standards are developed, the government will expect firms to start publishing transition plans in 2023.

But experts have highlighted that the government is not planning to make firm-level commitments mandatory. Instead, firms will merely be required to say how they will align their businesses with the UK government’s commitment on decarbonisation and the economy-wide transition to net zero. The Treasury says it will be for the market to determine if these plans are adequate or credible.

Charlie Kronick, senior climate advisor at Greenpeace, said: “The world’s first net-zero aligned financial centre would be one in which financial institutions and companies are required by law at the outset to bring their lending and investments in line with the global goal to limit warming to 1.5ºC”.

Sunak also revealed new data showing that commitments made under the Glasgow Finance Alliance for Net Zero (GFANZ) have now reached $130 trillion. The banks and investors that make up the alliance have pledged to align their businesses with the climate goals in the Paris Agreement, including limiting global warming to 1.5ºC.

Climate groups have accused GFANZ of being too lax, allowing institutions to continue supporting fossil fuel projects while remaining members of the scheme. A letter sent from 90 NGOs to Mark Carney, who is overseeing the initiative, said that for the plans to be credible, banks must immediately cease financing fossil-fuel linked companies.

In a similar vein, climate advocates warn that the requirement for UK firms to publish transition plans will be insufficient unless it is backed by robust regulation that ensures those plans are credible, and penalises firms that fail to stick to them.

“These new rules seem to allow plenty of wiggle room for financial institutions to continue with business as usual, rather than ‘rewiring’ the system as the chancellor claims,” said Kronick.

The UK is the first G20 country to announce plans to make net-zero transition plans mandatory, although a similar move is expected in the EU as part of its new Corporate Sustainability Reporting Directive. ECB board member Frank Elderson voiced his support in a speech in October.

This page was last updated November 3, 2021

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