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UK pledges finance sector transition taskforce, £100 mil in climate aid

03 November 2021 Cristina Brooks

The UK Treasury at COP26 affirmed October's vow to pass legislation forcing domestic finance firms to publish data on decarbonization targets they set themselves.

The head of the UK's public finance department, Chancellor Rishi Sunak, said he aimed to make the country the "world's first net-zero financial center," and made two other Paris-agreement-related climate finance commitments in a speech on 3 November.

In 2023, asset managers, regulated asset owners, and listed companies may be forced to publish a "transition plan that considers the UK's 2050 net-zero commitment" on GHGs, pledged in 2019, which will become part of a new regime of mandatory climate disclosure that the UK has been weighing for over a year.

Finance firms caught by the rules may be able to opt out of publishing the plans with an excuse, and the UK is still deciding what format the plans will take, taking care to avoid the often-cited green finance hurdle of "greenwashing."

Sunak announced the formation of a new industry, regulator, and civil society Transition Plan Taskforce to work on this problem.

Transition plans yet to take shape

The Treasury previously mentioned finance sector transition plans in an 18 October policy roadmap.

It planned to enact legislation, following consultations, so that UK corporations, asset managers, and creators of investment products would have to report the environmental impact of the activities of "every investment product" as well as "near-term plans to decarbonize."

What is more, asset managers would need to show how their investments are sustainable.

But much to the chagrin of activists, the UK stopped short of setting a goal for how much they must decarbonize or a goal for firms to reach net-zero. It also failed to ban investments in carbon-intensive activities. "Firms will have different overall targets," the Treasury said in a 2 November factsheet.

The UK did note in the roadmap, however, that industry or activist groups might soon by themselves come up with a "template for what a good quality transition plan looks like."

It said potential plans in the works include those by well-known initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD) and Climate Action 100+ and the Europe-based finance body Institutional Investors Group on Climate Change.

But financial firms will see the government monitor the environmental impact data they provide following the introduction of disclosure requirements.

The news comes four days after the government proposed separate legislation requiring data reporting on climate risk by pension schemes, investment products, and asset managers and owners. The parliament still has to approve the TCFD-aligned climate risk legislation before it can become law in April 2022.

That legislation would make the UK the only G20 country to oblige TCFD-aligned reporting, although New Zealand will launch a partly mandatory climate risk reporting regime in 2023. Australia, Canada, France, Japan, the US, and the EU are each working towards climate risk reporting rules for companies.

UK help for developing countries

Revealing more details of its pledges towards a recently announced £100 billion climate finance fund for developing countries, whereby rich nations begin fulfilling their overdue Paris Agreement obligations, Sunak said: "And I want to speak directly to the developing countries of the world—we know you've been devastated by the double tragedies of coronavirus and climate change."

The UK made two financing pledges towards this fund. First, the UK will spend £576 million on initiatives to mobilize finance in developing economies, including £66 million to expand a UK program, called MOBILIST and launched in February, that will develop new investment products funding "infrastructure, including renewable energy."

Secondly, the chancellor promised to launch a new Capital Markets Mechanism, which will issue "billions of new [UK] green bonds" to fund renewable energy in developing countries.

The green bond mechanism will allow interested vulnerable and developing countries, finance providers, and initiatives to work together on piloting new ways to improve access to finance.

The UK government has had past success in raising green finance, including launching two investment banks with a remit for domestic green infrastructure projects (one of which was later privatized), the National Infrastructure Bank and the Green Investment Bank.

The UK government in September raised £10 billion for green projects through the sale of the first green sovereign bond, which it called "the largest inaugural green bond issuance by any sovereign."

The government also noted its role in a new financing mechanism linked to the £8 billion Climate Investment Funds (CIF), a group of multilateral funds started in 2008.

It plans to use returns from previous investments to fund the sale of green bonds in London and raise up to $700 million of funding per year, so existing CIF programs for renewable energy production and improving energy access in developing countries can be scaled up.

Finally, the UK will commit £100 million to the newly established Taskforce on Access to Climate Finance, which it launched alongside Fiji at a pre-COP26 summit in March. The taskforce was established on the back of requests from developing countries that said they couldn't access the existing UN-linked Green Climate Fund.

The £100 million will be used to provide capital grants to the most "climate vulnerable" countries to help them deliver their climate plans, said Sunak.

Some outside the UK have criticized early drafts of the proposals, including Belize's Permanent Representative to the United Nations Carlos Fuller. In a June blog, Fuller recommended reforming climate finance institutions to prioritize direct access to climate finance, designing a shared accreditation process to access finance, and improving trust through transparency.

Climate finance momentum grows

Sunak took the opportunity to praise the Paris-Agreement-aligned pledge of an expanded alliance of green finance groups comprised of 450 banks, asset managers, insurers, data providers and others, the Glasgow Financial Alliance for Net Zero.

The enlarged UN-backed group of banks and asset managers was launched in April when it covered assets worth $40 trillion, but now covers assets worth $130 trillion.

However, the French group Reclaim Finance attacked the green credentials of the alliance, which did not oblige a promise to stop investing in fossil fuels as needed to reach the Paris Agreement target of a 1.5 degrees Celsius maximum temperature rise, and neither did it oblige a promise to reach absolute emissions targets that would ensure overall emissions don't keep growing.

Posted 03 November 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability


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