The 2021 United Nations Climate Change Conference came to a close as an inflection point for global climate recovery, with the urgency for action highlighted by the groundswell of demands for leaders to walk the talk by taking measurable steps to avert the climate emergency.
The big players in finance are stepping up to this challenge. As Mark Carney, UN Special Envoy on Climate Action and Finance, noted: “What you’re hearing today is the money is here, but that money needs net zero-aligned projects. There’s a way to turn this into a very powerful virtuous circle, and that’s the challenge.”
How can business seize these opportunities and deliver on the net-zero solutions that investors want to see? What role do they play in enabling this virtuous cycle? Cutting through the hodgepodge of announcements and acronyms, the implications of COP26 are clear – we are closer to our vision of a world where all financial capital is mobilized to support sustainable development.
GFANZ: the financial system wants to reward sustainable business
More than 450 firms representing USD $130 trillion in assets have been brought together by the Glasgow Financial Alliance for Net Zero (GFANZ), a forum for financial institutions to accelerate the transition to a net-zero global economy.
In addition to reporting their progress and financed emissions annually, GFANZ will support defining net zero pathways for key sectors, seek to align on transition planning for corporates and financial institutions, and devise a sector-wide plan to mobilize capital needed for decarbonization in emerging markets.
- The activities of the GFANZ have implications for corporates and Chief Financial Officers (CFOs), including the need to have clear net zero strategies and providing information on transition plans and progress against them to GFANZ members.
- This should also lead to more consistent requests from investors to corporates on their climate change strategies.
TSVCM: credible voluntary carbon markets play a role in an equitable transition
COP26 also saw progress made in scaling up credible voluntary carbon markets, whereby businesses buy offsets towards their corporate goals. Done with credibility, voluntary carbon markets could unlock finance to help achieve Nationally Determined Contributions, particularly in developing countries, to achieve a 1.5°C future.
The negotiations resulted in clarifying the structure of an international carbon market as outlined by Article 6 of the Paris Agreement, including the creation of a verification system that avoids double-counting of emission reductions between countries. Bodies like the Taskforce for Scaling the Voluntary Carbon Market (TSVCM) will also strengthen the governance of voluntary carbon markets.
- Increased confidence and trust in carbon markets are an important lever in fast-tracking natural-climate solutions in the race to net zero.
- What will be critical moving forward is ensuring that voluntary carbon markets use aligned standards, accounting and inventories as those used by compliance markets.
ISSB & TCFD: sustainability reporting on the road to global standardization & mandatory disclosure
The launch of the International Sustainability Standards Board (ISSB) is a significant development towards a global baseline on sustainability reporting focused on enterprise value creation. Under the governance of the IFRS Foundation, the ISSB will also merge with the Value Reporting Foundation (which itself was a merger of two initiatives, the IIRC and SASB) and the Climate Disclosure Standards Board.
Two prototypes from the Technical Readiness Working Group have been released. The climate standard prototype draws on existing standards and best practice, particularly from the Taskforce on Climate-related Financial Disclosures (TCFD). The second prototype is around general requirements for sustainability-related financial information, which is also based on the structure of the TCFD.
- Business leaders have a critical role engaging in advisory roles and public consultations to support the development of the ISSB standards, which WBCSD members connect with through the CFO Network. The ISSB will underpin sustainability reporting initiatives by serving as a global baseline, on top of which jurisdictions can add additional regulatory requirements by a “building blocks” approach.
- Moves towards mandatory TCFD reporting are progressing in many jurisdictions and investor interest is growing. WBCSD members can prepare through participating in and looking at our TCFD Preparer Forum, scenario and readiness activities.