What a week in sustainability recently with COP26 bringing together world leaders to commit to global climate action. The conference is a significant global milestone as we start to move away from Covid 19 and think about recovering from the pandemic by building back better, and greener. We thought we'd give you a brief overview of three key developments in relation to finance that were discussed during the first week of the UN's climate change conference in Glasgow.
Creation of an International Sustainability Standards Board
The IFRS Foundation said that it would form the International Sustainability Standards Board (ISSB) to develop minimum sustainability disclosure requirements for companies around the world. The new standards will ensure information is comparable across industries and financial markets. Companies will be required to comply once they are adopted by national regulators, who will have the power to tailor them at a local level.
The board will sit alongside the IFRS’s International Accounting Standards Board, which will continue to oversee the standards governing financial statements. The Climate Disclosure Standards Board and the Value Reporting Foundation have backed the ISSB and committed to merge with the new board by June next year.
Henry Daubeney, Global Head of IFRS and ESG Reporting at PwC UK said "I have strongly supported this initiative and welcome this milestone announcement. Companies and stakeholders have struggled with the myriad of sustainability standards, frameworks and metrics. The ISSB standards will provide the foundation for consistent and global – environmental, social and governance (ESG) reporting standards that will enable companies to report on ESG factors affecting their business."
GFANZ reaches 130 tn dollars
During Finance Day of Cop26, the Glasgow Financial Alliance for Net-Zero (GFANZ) which is fronted by Mark Carney, former Bank of England Governor, confirmed that it has more than $130tn in assets under management.
The Alliance now accounts for 40% of the world's total financial assets, up from $90trn at the start of October. These assets are managed by 450 firms across 45 nations, from all parts of the financial industry. GFANZ members are required to transition their portfolios in line with the Paris Agreement and are being pushed to work towards 1.5C rather than 2C temperature pathways.
Mark Carney claimed that the money was there globally to reach net-zero emissions, but that the financial sector "needed" net-zero projects and businesses to invest in.
Green groups question whether GFANZ announcement is all it seems
Groups including Reclaim Finance questioned the top-line commitments coming from the Blue Zone. A shared criticism was that only a fraction of GFANZ's collective assets are being aligned with a net-zero by 2050 roadmap, and that this roadmap came from the Alliance itself. Basically then, there is a risk that they are marking their own homework. The UN has promised to establish a group of experts analysing the credibility of net-zero commitments from non-state actors but it is not operating yet.
ShareAction's senior manager Jeanne Martin said: "It's true that these financial institutions have all committed to reaching net-zero, but dig into the numbers and you see that they are not making this commitment for all of their assets. Also, GFANZ is saying this $130tn of net-zero commitments can deliver the $100trn in capital investment needed to reach net-zero. But because there is so little regulation of net-zero commitments, there is no guarantee we will get those capital investments."
ICAEW commented: "The eye-watering figure, in theory, will deliver the estimated $100tn of finance required for net zero by 2050. However, Reclaim Finance highlighted that only one-third of the Alliance's collective assets are currently aligned with their 2050 roadmap. The concern is that the Alliance is 'marking its own homework' and that it "lacks any criteria on fossil fuels or absolute emission reductions". The headline figure is problematic, as much of this finance is not allocatable and may not be easily divestible. In addition, the way the fund was calculated has led to double counting. GFANZ have said they are taking steps to manage member commitments and will establish "processes for removing members where necessary", but this must be developed and communicated in a timely fashion to ensure transparency and a clear pathway to net zero."
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