Trade for prosperity

Jointly Organised by the All-Party Parliamentary Group for the UN Global Goals for Sustainable Development and the International Chamber of Commerce

In the wake of the COVID-19 pandemic, building back better and greener has become an immediate priority for a sustainable long-term reconstruction plan. Acknowledging the United Nations Sustainable Development Goals (SDGs) as the framework to rebuild is insufficient. We must embrace the SDGs at pace and scale, given that we have less than ten years to deliver the transition required for a sustainable future. 

The pandemic underlined the interdependence of countries towards achieving public goods, but it also demonstrated that collective action combined with true political will enables synergy capable of delivering effective change. Likewise, the sustainability agenda and other global priorities, including climate crisis, biodiversity degradation, and growing inequalities, need to be addressed in tandem to be successfully tackled. The SDGs also have an imperative role in bringing in references to diversity and inclusivity with a cross-cutting approach to overcome global emergencies. 

The alignment of SDGs would effectively unlock and direct the resources toward needs, build a more sustainable and inclusive economy, and generate economic growth. 

Despite the boost of public sustainable finance, there is still a gap of US$2.5 trillion per year to achieve all 17 SDGs by 2030, widened with US$1 trillion gap in COVID-19 emergency, according to the UNCTAD’s World Investment Report. We will only be able to reach the investment targets with the mobilisation of the private sector financing, investment and enhancing the development impact of private finance. That would require the right environment and incentives that drive the flow of capital at the required speed to which SDGs investment matters most, particularly in emerging economies. The proliferation of market-based standards with a clear rule of methodology assessment is needed to avoid market distortions and SDG-washing.

Theo Clarke MP, Chair, APPG United Nations Global Goals for Sustainable Development 

I just wanted to reflect that I have seen more and more climate-related events in the last few years, particularly in my constituency. Particularly, flooding springs to mind. And I think at the same time, around the world, we have all seen millions of people have had their lives completely disrupted by the Covid-19 pandemic. It is fair to say that it is pushing back progress on delivering the SDGs. 

Our APPG published a major report last year looking at climate and the SDGs, and I think what we made very clear is there is a very short window left to try and get back on track and to really urgently deliver on the goals and to make sure governments are delivery on these critical agendas if we do want to have sustainable and healthy futures for generations to come. Both here in the UK but also around the world. The other thing Covid indicated to me was the importance of working together to achieve public good and how interconnected we all are as countries. I also think it demonstrated that collection action combined with political will and leadership is really what is necessary to deliver effective change.

We know there is still a significant gap in sustainable public finance. We need to raise about $2.5 trillion per year to achieve all 17 Sustainable Development Goals by 2030. And realistically, we will only reach those development targets if we mobilise private sector financing and investment and enhance the development impact of private finance. So I very much hope today’s event will help us shine some light on the very practical initiatives that are being set up to enable this and see how we can work together to achieve both the SDGs and our climate goals by 2030.

Keynote from Mark Carney, UN Special Envoy for Climate Action and Finance and Chair of Glasgow Finance Alliance for Net Zero

Thank you. I thought I would spend a few minutes trying to tease out what the Glasgow Financial Alliance is, or GFANZ as I will refer to it. What it is doing and how it will interact with a new financial system that is helping and created through efforts to Glasgow, and how the financial system will interact with government, business, and other stakeholders to achieve global goals, but I will focus on climate specifically. I would note that we will benefit from an excellent panel after I speak, and each of those is instrumental in developing these reforms themselves and these commitments much more broadly.

The first thing I want I want to say, I think it is essential to consider what was accomplished more broadly in Glasgow because of the interplay in what governments are doing and finance and how it can be part of the solution. And I would underscore a couple of points. 

The first is that the world is coalescing around a net-zero transition limiting temperature rises to 1.5 degrees. That is new. That is a tighter objective than was agreed upon in Paris and was agreed upon both by the G20 leaders and at COP by 192 countries. 

Underpinning that is country commitments to net-zero objectives that have risen from less than one-third of global emissions when the UK and Italy took over the COP Presidency two years ago to over 80%. That is part of the reason the COP President, Alok Sharm, said 1.5 degrees is still alive but perhaps on a bit of life support because there is a gap between countries’ policies and their objectives. So if everyone only implements their policies, which is a big assumption, then the world ends up at 2.5 degrees. So one of the themes here is going to be able to more incredible and predicable policies from countries that can interact with a financial system that is reorientating itself to net zero.

The second thing I want to underscore from Glasgow is the series of other so-called ‘side deals’. They are actually pretty mainstream deals, including the more than 100 countries pledging to end deforestation by 2030, the 100 countries plus, reducing methane by 30% by 2030. Deals on coal and transportation and critically the completion of the Paris rule book and the so-called ‘Article 6’ which helps unlock voluntary carbon markets. 

But in many respects, one of the most important stories of Glasgow was the private sector. More engaged than ever before and moving with purpose because the public sector, because society is moving towards that net-zero goal that is cascading down to the level of the company and financial sector. Over 5,000 of the world’s largest companies are now developing science-based, in other words, the most rigorous net-zero plans and that will expand quite rapidly.

Now, I said I would focus on finance, and everything from here on in will be about finance. 

The first thing I will say is out of the spotlight of the commitments, the GFANZ commitments, the $130trillion, were critical reforms, 24 of them to the information, the tools and the markets at the heart of the financial system. These are necessary in order to make climate part of every financial decision. I won’t go through all 24, but I will signal some of the most important. 

Mandatory climate disclosure will come through a new global body, the International Sustainability Standards Board. Those draft standards will be delivered this summer and the ISSB has already been endorsed by 45 countries accounting for more than 75% of global emissions including all the major G20 and G7 countries. This will interplay with climate stress testing by the central banks of our banks and insurers and with new frameworks that need to be developed through GFANZ and, ultimately the public sector.

With those series of 24 reforms, we are, through the plumbing, moving climate change from the fringes to the forefront of the financial system and making the transition to net-zero a strategic imperative. A fundamental driver not just of risk but of value in the financial system.

Turning to GFANZ. Two years ago, about $5 trillion of private financial assets were committed to net-zero. Today, through GFANZ, over 450 major financial institutions from over 45 countries have committed to managing their balance sheets that total over $130trillion. That is 40% of global financial assets and its scale of financial firepower that is required for that global energy transition and, as Theo mentioned that $2.5trillion for the Sustainable Development Goals. So the critical thing now is turning commitments into implementation, and I am going to flag the three core workstreams of GFANZ. This is work underway at present, and these are workstreams that will have implications, positive implications, I would argue, for the businesses on the call and ultimately for the planet. 

The first is implementing the financial system for net-zero. That means defining and implementing best practice, science-based net-zero transition plans for financial institutions and for the companies they lend to or invest in. You will start to see reports from leading financial institutions this year and I would suggest that once best practice for these transition plans is developed in the field so to speak, these plans should become mandatory for larger firms as the Chancellor did signal for the UK at COP26. 

In addition, we need to develop a comprehensive approach to phase out stranded assets transparently, responsibly and consistently with the net-zero transition. This is part of a need for a better-defined energy transition. 

Thirdly, we need to shift core financial indices and benchmarks to better align with the transition to bring the power of passive capital to support that transition. And we need to build out the promise of carbon offset markets, which is unlocked by that Article 6 agreement. To be clear, companies’ primary responsibility is to reduce absolute emissions, but offset markets can compensate for residual emissions along these pathways and create enormous co-benefits for nature, breakthrough technology, indigenous communities, and emerging and developing economies, all while expanding our carbon budget. 

I want to underscore what this audience knows. The transition does not mean flipping a green switch. It doesn’t mean only investing in companies that are already green. It means a transition, and financial institutions will be going to where the emissions are and backing those companies with credible plans to transform those businesses.

Part of the way we accelerate that process is through those credible policies of countries. We have released as GFANZ a call to action with concrete recommendations to governments for ambitious climate policies so that companies and countries can take full advantage of the resources available. These policies include carbon pricing, support for households and small businesses to ensure a just transition and making those net-zero plans mandatory for large companies. 

The third major area is the work that is being done to mobilise investment in emerging and developing economies. There are enormous needs for the climate transition alone. We need to unlock an additional $1trillion of investment for these countries by the middle of this decade. That is an annual figure. What we are doing is we have reviewed existing initiatives, and Ike can speak to this; they helped lead, to focus on the most promising to scale those flows. In parallel, we are working with the official sector to develop what is called country platforms and these are ways of bringing together all forms of finance for ambitious country climate plans in a way that catalyses activity and leverages effectively public sector balance sheets. 

In conclusion, I just underscore that what has changed is not just the scale of commitments but the plumbing of the sector and because of work such as with the APPG, ICC and parliaments more generally, a recognition that addressing climate change is a goal of society, therefore, it is not just a risk to be managed but it is an opportunity to create value and indeed the biggest commercial opportunity of our time. It is that way that we get the full benefit of the reforms and the commitments that have been put in place in Glasgow and beyond.

Q&A with Lord McConnell of Glenscorrodale, Co-Chair APPG United Nations Global Goals for Sustainable Development

Lord McConnell 

Can I start off with that key point you made, Mark, about effectively mobilising private sector finance and differentiating between those institutions that are doing the right things and those that are not doing enough? I really welcome this move towards international standards of reporting, which I think will be critical in this. What should people be thinking about both if they are looking in their supply chain or as parliamentarians if we are looking outward to the sector? What should we look at so we can effectively measure those who are giving commitments and ensure that there is not a lot of greenwashing going on?

Mark Carney

It is an excellent question, and it’s one at the heart of the commitments that we put in place. So, just to be clear, if you are a bank or insurance company or an asset manager or asset owner, what you have committed to as part of GFANZ is not just that the companies you lend to are invested and will be consistent with net-zero by 2050 but that they will have contributed to the almost 50% reduction in emissions we all need by 2030. 

In addition, you will have annual reporting of the emissions of those companies. So if you are a company on this call and you are wondering why your financial institutions are asking that question, it is because they have to report that information themselves and manage it. The first thing is to underscore what is happening in the system is companies and financial institutions are going out and measuring and being clear about the Scope 1, Scope 2 and where material Scope 3 emissions of everybody and they will be reporting on an annual basis. So all stakeholders will be able to see for big banks and insurance companies etc, what are the emissions in their portfolio and then very importantly what are the expectations, what is the plan of those institutions to manage those emissions towards that net-zero pathway. Then you will be able to see over time how they perform against that. And I think one of the key things here is that these are not ESG ratings. 

These are not style assessments. These are hard numbers. These are emissions. You cannot greenwash emissions. 

A critical point though, which requires a degree of analysis, thought, and judgement is that we want our financial institutions to go where the emissions are and back those projects, those investments that are going to get them down. So, we can just flip that green switch, and in some cases emissions might go up or they might go down less rapidly than they would if that institution just divested itself of emissions in hard to abate sectors, heavy emission sectors such as steel, cement, building, real estate, areas that we really need to invest in if we are going to get to net-zero. So, it’s the reporting, the planning, the annual nature which will invite the scrutiny and the race to the top.

Lord McConnell

Thank you. I think another question that is on people’s lips which in many ways runs alongside that is about momentum. Certainly in the UK but also I think around the world there was really quite a lot of excitement around COP26 and the build-up to it and the number of young people involved and taking action on climate change around the world. The number of new commitments from the number of commitments from the private sector was inspirational for many people. Do you feel that that momentum is being maintained? Can we look forward with hope to Egypt later this year? Or, as these things sometimes happen with international summits, has there been a peak and it’s going to be very hard in this post-pandemic climate to maintain that level of interest and activity?

Mark Carney

That is another excellent question. You know well from previous initiatives, whether they are international or domestic, that is the norm to be candid is that you get the effort and then there is almost the temptation, it would be hard to do in this case, to say that that’s that done! The way around that I think, is a couple-fold. 

The first is to ask the question and almost be paranoid about that risk. 

The second is to ensure that companies, financial institutions and governments are out there with stakeholders, youth and with other stakeholders who will continue to apply, quite rightly so, the pressure and the scrutiny. 

The third is to set near term objectives. So for Sharm-El-Sheik, for the summit later this year, out of Glasgow, countries are supposed to make greater efforts, so that will be part of the judgement. What we have done as GFAZ, is to say there is a number of financial institutions who will have to release the first version of their emissions and their decarbonisation plans. 

How many assets are going to move over what year term period? So setting up that actual information to enable people to begin to judge both the scale of the problem and what financial institutions intend to do about it. At GFANZ we have some very clear metrics in terms of some of the reforms we have to have finished by Sharm-el-Sheik. So I think you do have to use later this year as another anchor point and ensure we have the engagement that is required with the stakeholder groups that are demanding action. 

Lord McConnell

I am sure that colleagues will be delighted to hear that GFANZ is still in place and that it wasn’t just a Glasgow initiative. 

Mark Carney

Yes, can I just jump in on that? What we have done is to have secured philanthropic funding for GFANZ. There is a permanent secretariat that is in place now. It will be about 20 people. We will be establishing offices in Egypt, and there will also be one in Asia, one in Latin America in due course, and that structure is all there. We have working groups on all of these initiatives. There are hundreds and hundreds of senior executives who are meeting on this. We convened just a few weeks ago the CEOs who are part of the steering committee. They met with me, Mike Bloomberg, the GFANZ Co-Chair, and Mary Schapiro, who ran the FD process to come in as the President. We met with the Secretary-General of the UN to go through this, and there will be meetings with the COP President through the course of the year to hold our feet to the fire, rightly so. 

Meetings concentrate the mind, and they make sure you are not going to show up empty-handed, and that is what we need to do to push forward.

Lord McConnell

Thank you, Mark. I am certain I speak for leaders, participants, and contributors everywhere, who are interested in this agenda when I say that we welcome your openness over the past 12 months to speak at events like this, answer questions simply and honestly and help leaders through this critical transition. I wish you well with the continuing work and look forward to seeing you again soon. Thank you very much indeed.

To watch Mark’s speech and the APPG meeting in full and the second half of the APPG meeting:  

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