The UK has developed a climate action agenda specifically for private finance in connection with its presidency, with Italy, of this year’s United Nations (UN) climate change summit, with a preview of the strategy yesterday welcomed for providing clear direction.

The agenda was unveiled at an event in London by Mark Carney, who will step down as governor of the Bank of England next month to focus on his roles as UN special envoy for climate action and finance, and COP26 finance advisor to UK prime minister Boris Johnson.

In a speech, he said private finance would have a critical role to play in a successful transition to a net-zero carbon economy, and that “with the UK COP26 Presidency, in partnership with Italy, the world is watching”.

The objective for the private finance work for COP26, which will unfold in Scotland in November, was to “ensure that every financial decision takes climate change into account,” he said.

There would need to be action by the private sector, but “we will work with you”, and there would be actions needed by regulators and governments to catalyse the private financial sector’s efforts.

Three prongs

“On the road to Glasgow, we will focus on the three Rs – reporting, risk management and return – to help unlock the private financial flows that are vital to the transition,” said Carney.

He called on the private finance sector to “help refine and implement” disclosure based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. At the same time, the UK COP26 presidency would “work with authorities to commit to pathways to make climate reporting mandatory”.

In the meantime, the private financial institutions were encouraged to contribute to a review of the current TCFD framework to allow for any improvements before disclosures became obligatory, and to demand TCFD-consistent disclosures from companies.

Pension funds were specifically mentioned in the context of the net-zero goal, with Carney saying that they as well as others in the private sector “will increasingly be expected to develop and disclose their transition plans”.

He said the UK COP26 presidency would be looking to build on existing work and networks, such as the Net Zero Asset Owner Alliance, Climate Action 100+, and the Principles for Responsible Investment (PRI), “to build a large coalition of asset owners and asset managers who expect their portfolio companies to become net-zero aligned”.

Fiona Reynolds, CEO of the PRI, said she was “delighted that finance will play a key role at COP26 in Glasgow”.

“This is the first time a host government for the COP has fully recognised the critical role that finance has to play alongside state actors and sought to prioritise its contribution,” she said.

“The COP26 private finance agenda is a clear call to action for the finance industry, setting direction for a number of initiatives that have already moved from the fringes to the mainstream of our industry since COP 21”

Vanessa Bingle, senior manager, Alpha FMC

Vanessa Bingle, senior manager at asset management consultancy Alpha FMC, said the COP26 private finance agenda was “a clear call to action for the finance industry, setting direction for a number of initiatives which have already moved from the fringes to the mainstream of our industry since COP 21”.

She said the announcement “goes right to the heart of the way asset managers do business and requires firms to fully embed environmental considerations into the core of their processes, data, technology and people development. The scale of change is meaningful and asset managers must lay out concrete plans in order to keep up”.

Gill Lofts, sustainable finance leader at EY, told IPE that pulling out private finance as a separate work stream was “absolutely the right thing to do” and that Carney’s speech and the associated strategy overview document “really nicely lay out some great steps to take over the next nine months to move things forward”.

And there was plenty of work to be done, she said.

“The detail around what firms – both public and private – need to do to build on their current sustainability metrics or how they will report and measure is not yet clear.

“Banks, asset managers and insurers need to work closely with government and policy makers on this crucially important and complex matter. They will be keenly awaiting more information before they can act with real meaning and embed climate change into every financial decision they are making.”

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