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Most big UK firms and financial institutions will be forced to show how they
intend to hit climate change targets, under proposed Treasury rules.
By 2023, they will have to set out detailed public plans for how they
will move to a low-carbon future - in line with the UK's 2050 net-zero
target.
An expert panel will set the standards the plans need to meet
to ensure they are not just spin.
Any commitments will not be
mandatory. Green groups say this is not enough.
Net zero is when a
business or a country achieves an overall balance between the amount of carbon
it is emitting and the carbon that it's removing from the atmosphere.
Firms
and their shareholders will be left to decide how their businesses adapt to this
transition, including how they intend to decarbonise.
And although
the plans will need to be published, the government said "the aim is to increase
transparency and accountability" and the UK was not "making firm-level net-zero
commitments mandatory".The market will decide whether firms' plans are credible,
the Treasury said.
Speaking at the COP26 climate summit, Chancellor
Rishi Sunak claimed the UK was leading the world in becoming the "first-ever net
zero aligned global financial centre".
He said the changes would
mean: "Better and more consistent climate data; sovereign green bonds; mandatory
sustainability disclosures; proper climate risk surveillance; and proper global
reporting standards."
In total, 450 firms controlling 40% of global
financial assets - equivalent to $130tn (£95tn) - have agreed to commit to limit
global warming to 1.5C above pre-industrial levels.
'Not fast enough
'However, campaign group Global Witness said that without regulation the pledges
were "doomed to fail".
"Banks and financiers are the lifeblood of the
fossil fuel companies and destructive agribusinesses fuelling the climate crisis
- so it's right that focus should be on them at COP26.
"However,
today's announcement by banks risks amounting to more greenwashing if it's not
legally binding," said Veronica Oakeshott, head of forests policy and advocacy
at Global Witness.
David Barmes, senior economist at the campaign
group Positive Money, said the intention was positive, but that financial firms
were still "pouring billions into environmentally harmful projects."
Mark
Campanale, founder and executive chair of Carbon Tracker Initiative, praised the
ambition of the plans, but said details of how it would work were still
unclear.
"None of the financial assets announced are currently
aligned with net-zero and no group of companies can say they are meeting the
Paris target by continuing to invest in fossil fuels, so that needs to change
considerably before London can be lauded as the world's first net-zero financial
centre and a model for the world," he said.
Shaun Spiers, executive
director of environmental think tank Green Alliance, said that more UK public
sector funding was needed.
"Private sector investment is vital, but
it will be much easier to achieve on the back of serious investment by the
chancellor," he said.
However, a coalition of finance groups led by
former Bank of England governor Mark Carney said there was enough finance
committed to keep global warming to 1.5C.
The Glasgow Financial
Alliance for Net Zero (GFANZ) said more than $130trn (£95trn) of private capital
"is now committed to transforming the economy for net zero".
In
practice, this means that bank loans which would go to an oil field, or a coal
mine, are diverted to renewable energy or to a mortgage product that subsidises
highly efficient homes.
Bank bosses will also be expected to have
tough conversations with their customers who want to build coal power stations,
pulling funding in advanced nations now, and developing countries beyond the
next decade.
Transition plans
Under the proposed Treasury rules, financial institutions and companies with
shares listed on the London Stock Exchange must come up with net-zero transition
plans, which will be published from 2023.
The strategies will need to
include targets to reduce greenhouse gas emissions, and steps which firms intend
to take to get there.
A taskforce made up of industry leaders,
academics, regulators and civil society groups will set a science-based "gold
standard" for the plans in order to guard against so-called "greenwashing" -
where environmental initiatives are more about marketing than substance.
However,
the government said there was "
not yet a commonly agreed standard for what a good quality transition plan
looks like".
Meanwhile, Mr Sunak also pledged that a target for developed
countries to send $100bn (£720m) a year to those that are less developed - to
help support their transition to net zero - will be achieved by 2023.
Alison Rose, chief executive of Natwest, told the BBC Radio 4 Today
programme that the bank had started measuring the emissions on its balance sheet
to help it track progress, saying "transparency was critical".
She
said the bank was working with the oil and gas industry "to develop credible
transition plans so we can track progress and work with our customers".
But
Ms Rose said its main focus was helping small firms where there were "real
business opportunities" in "adopting sustainable supply chain [and] sustainable
business practices".
Kay Swinburne, vice-chairman of financial
services at KPMG UK, said the announcement on UK firms would provide the
financial services industry with a "valuable set of unified metrics to measure
progress towards decarbonisation".
"It is brave to put a gold
standard in place for all companies raising funding," she added.
And
Dr Ben Caldecott, director of the UK Centre for Greening Finance and Investment,
said the plans would "spur demand for green finance and accelerate
decarbonisation, not just in the UK but wherever UK firms do business".
AnalysisFaisal Islam, Economics editorFollow the money to net zero. That is the plan unveiled today, with
two-fifths of the world's financial assets, $130 trillion, under the
management of banks, insurers and pension funds that have signed up to 2050
net-zero goals including limiting global warming to 1.5C.This means that the giant laser beam of global finance will be
fired towards technologies that lower and eradicate carbon emissions, and away
from "brown holdings" of investments in coal, oil and gas.
The aim
of the initiative chaired by former Bank of England Governor Mark Carney is to
change the plumbing of the whole financial system forever.
What does
this mean in practice?
Essentially the easy cheap bank financing that
naturally flows to, say, an oil field, or a coal mine, is diverted to renewable
energy or to a mortgage product that subsidises highly efficient homes.
In fact all of this is already happening in niches, with loans
raised for environmental investments attracting a flood of money, and so cheaper
funding - something referred to as a "greenium".Bank chiefs say they are having
tough conversations with their customers who want to build coal power stations,
pulling funding in advanced nations now, and developing countries beyond the
next decade. So that is the grand hope.
Promisingly, the Chinese,
whose public banks have been huge backers of coal around the world, have also
said they will step back from such investments.
But the negotiations
in Glasgow will fall short of setting a global carbon price - the sort of
measure that could really guarantee the path to net zero.
They have
also so far not come up with a globally consistent way for bank regulators to
force the financial system to increase the risk and the cost of lending to
carbon intensive industry.
And then there is the really fundamental
question about COP26's climate finance agenda: can such fundamental ecological,
economic and social change really be achieved more through financial carrot than
by regulatory stick?
This position suits politicians who don't
necessarily want to tell their voting public to consume or travel less than they
are used to.
By changing the financial system, their hope is that
the trajectory of every economic sector, from energy to transport, food to
clothing, how we live, work and what we consume will decarbonise of their own
accord.
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