Wednesday was finance day at Cop26, with a programme including talks from central bankers, finance ministers and the leaders of multinational institutions. While some of the discussions concerned fiscal and other government matters, the following are the highlights relevant to central banking and financial supervision.
New global climate reporting standards
Erkki Liikanen, chair of the International Accounting Standards Board, announced the creation of the International Sustainability Standards Board (ISSB) to develop global sustainability disclosure standards, including climate-related financial disclosures. The announcement was accompanied by a series of documents outlining a prototype for climate-related reporting standards, intended to be finalised in 2022.
“These actions together create the necessary institutional arrangements for a global sustainability disclosure standard-setter for the financial markets,” Liikanen said. “We now have a path towards global sustainability disclosure standards for the financial markets. We will move diligently, but with pace.”
The move to global sustainability standards was immediately welcomed by the Basel Committee, the body responsible for global banking regulation. In a press release issued by the Bank for International Settlements, the committee expressed strong support for the initiative and promised to “work on the Pillar 3 framework to promote a common disclosure baseline for climate-related financial risks across internationally active banks”.
GFANZ members commit to $130tn for Paris alignment
Mark Carney, UN special envoy on climate, announced that members of the Glasgow Financial Alliance for Net Zero (GFANZ) have committed to align their portfolios with the pathway to the Paris Agreement targets using “gold standard” procedures and metrics, with balance sheets totalling over $130tn.
In just a few years climate change has become a core issue for the financial sector, Carney said, and the goal for Cop26 is now to build a financial system in which every decision takes climate change into account. Only mainstream finance can deliver the estimated $100tn-plus in climate finance needed over the next three decades, he added.
Carney pointed to the 24 recommendations outlined by the Cop26 Private Finance Hub in a report published late last year, saying that all of them will now be delivered. These measures include: mandatory climate-related disclosures; widespread climate stress testing; best practice and science-based transition plans for companies and financial institutions; robust assessments of portfolio alignments with net zero; and frameworks to wind down stranded assets transparently and responsibly.
Launched last April, GFANZ is an alliance of over 450 financial firms across 45 countries responsible for assets of over $130tn. Climate groups have strongly criticised GFANZ for allowing member institutions to continue the financing of fossil fuel projects.
An overview of GFANZ’s’s work to date and details of the portfolio alignment were included in a progress report released alongside Carney’s speech.
“With GFANZ, we have all the money needed for the transition,” Carney concluded. “Our job is to have the plumbing that helps put it to work.”
UK proposes mandatory transition plans, but little new from the US
UK chancellor Rishi Sunak announced plans to make the country the world’s first net-zero aligned financial centre, including requirements for big firms and financial institutions to publish net-zero transition plans. The announcement included plans to establish a taskforce on the new measures, due to report next year.
Sunak was followed by US treasury secretary Janet Yellen. “The climate crisis is already here, and rising to this challenge will require the wholesale transformation of our carbon-intensive economies,” Yellen said. Estimating the price tag for this transition at $100-150tn, Yellen said governments are not capable of funding this amount and that private funds are essential to fill the gap.
Saying that “the United States is stepping up”, Yellen announced that the US will join the UK to fully support the Climate Investment Fund’s Capital Markets Mechanism to leverage private sector finance and provide $500m per year for clean technology.
“We have an essential responsibility to ensure the resilience of the financial system to climate-related risks, said Yellen, pointing to President Biden’s executive order on climate-related financial risks and to the recent report from the US Financial Stability Oversight Council recognising climate risk for the first time. Her remarks focused exclusively on climate risks to the financial system and did not address the double materiality of the effects of financing on climate change.
Yellen also spoke about the need to enhance the climate resilience of infrastructure projects, referring to US plans for offshore wind projects and EV charging networks, currently stalled in the US Congress.
This page was last updated November 4, 2021
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