Finance day at COP26 bought headline grabbing news – including the establishment of Mark Carney’s GFANZ and new accounting standards – but the PRI’s Fiona Reynolds tells FIS delegates more needs to be done.

A swathe of encouraging commitments from the financial world in response to the climate emergency will help make this year’s COP26 a success, said Fiona Reynolds, CEO of the PRI speaking live from Glasgow at FIS 2021 Digital.

She said that in marked contrast to previous meetings she has attended during her nine-year tenure as CEO, finance’s role in trying to solve climate change is now front and centre, on the main agenda and stage with financial leaders making the headlines.

“The investment sector is playing a major role in transitioning the real economy,” she said.

GFANZ

Headline grabbing news came thick and fast during COP’s finance day kicked off with the announcement from a new financial coalition (and a new acronym) Glasgow Financial Alliance for Net Zero (GFANZ) that it has $130 trillion to spend on tackling climate change.

“From humble beginnings they released their first progress report yesterday,” said Reynolds of the organisation, led by Mark Carney, the former Bank of England governor, now a UN special envoy on climate and finance.

“There is now $130 trillion in private capital committed to transforming the economy.”

It wasn’t long before the eye-watering number raised concerns that GFANZ, which comprises 450 banks, insurers and asset managers from around the world of which investment managers account for $57 trillion of the pledged assets, banks $63 trillion and asset owners $10 trillion, may not be able to deliver all it promises.

Critics voiced concerns that not all GFANZ signatories will set out credible, near-term decarbonisation plans, and said that it doesn’t represent a new pool of money.

Moreover, banks have signed up to the pledge while continuing to finance fossil fuels.

“None of the GFANZ initiatives require their members to commit to phasing out from fossil fuel finance. The initiative will fortunately be reviewing its guidelines every year – we’ll be keeping our eyes peeled for the entry criteria moving upwards,” wrote advocacy group ShareAction in a twitter post. Comments echoed by Reynolds who said all GFANZ members’ net zero disclosures would be scrutinised annually.

Nigel Topping, high level champion for climate action at COP26, who spoke at FIS Sustainability 2020 on how asset owners should do more to hold their managers to account on climate change, argues that GFANZ’ voluntary commitments will not solve the problem without policy action.

“Financial services firms will play a critical role in the transition to a net zero economy, including mobilising the trillions in investment needed, but greater policy action is needed. Specific policy requests of today’s GFANZ call to action include: the end of fossil fuels subsidies; carbon pricing; and a comprehensive reform of financial regulations to support the net zero transition,” he wrote on LinkedIn.

Accounting standards

Perhaps one of the most exciting developments came with the starting gun sounding on new sustainability accounting rules, destined to put sustainability reporting on the same footing as financial reporting. A breakthrough Professor Stephen Kotkin hailed as possibly the most significant initiative to come out of the conference.

IFRS Foundation trustee chair Erkki Liikanen announced the formation of the International Sustainability Standards Board (ISSB) which, integrating existing, key reporting criteria, aims to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

“The development of a consistent standard on climate, and eventually all ESG issues, marks a hugely significant step for investors. Vitally, the ISSB has committed to develop standards which align with the requirements of specific jurisdictions – namely the EU’s Corporate Sustainability Reporting Directive, the US and Asia-Pacific,” said Reynolds.

Other standout announcements include UK Chancellor Rishi Sunak reaffirming plans announced in October to require British listed companies to publish net zero emissions road maps by 2023 that set out how they plan to decarbonise by 2050. A task force made up of industry representatives, academics, regulators and civil society groups will be established to develop a “gold standard” against which companies must detail their transition plans. “Hopefully others will follow,” said Reynolds.

Elsewhere Reynolds, who hands over the PRI leadership to former Cbus CEO David Atkins in December (and joins Conexus Financial, publisher of Top1000funds.com as CEO) noted that the financial community’s role in protecting biodiversity has been another conference theme.

“Firms need to focus on other areas like deforestation,” she said, referencing how a group of 30 investors announced plans to coalesce around an initiative to eliminate commodity-driven deforestation by 2025.

“It’s a small group, but it will grow.”

Reflecting on other initiatives away from finance day, Reynolds said the announcement that more than 40 countries have pledged to quit coal was marred by the absence of key coal consumers China, US and India.

“It’s good, but not good enough,” she said.

Reynolds said that most asset owners that are PRI signatories won’t invest in new coal projects and Asset Owner Alliance members (PRI signatories that have committed to net zero) have committed to get out of coal by 2030.

“Only a small percentage of world energy comes from renewables. We need investors to invest in solutions,” she concluded.

Sarah Rundell is a staff writer for Top1000funds.com based out of London. She writes on institutional investment across all asset classes, global trade and corporate treasury.
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