Hanover

5 Feb 2021

The key question at the heart of Government on COP26 is how can businesses be pushed to respond better to the impact of climate change. It’s an issue that government officials are devoting much of their thinking to and all fingers are pointing towards encouraging businesses to move capital out of the ‘wrong places’ and into the ‘right places’.

But why is financing net zero such a priority for meeting our climate change commitments? Underlying the international efforts on climate negotiations and the push to get countries to sign up to Nationally Defined Contributions (NDCs), is the simple fact that countries need to be confident money is flowing to meet their commitments.

Mark Carney, in his capacity as UN Special Envoy and Adviser to the Prime Minister, is spearheading a COP26 Private Finance Hub to focus on this very issue. In November 2020, Carney launched the Hub’s strategy that detailed the Government’s roadmap towards “building a system that mobilises private finance to support the re-engineering of our economies for net zero”. Whilst the strategy commends the actions taken so far to realign private finance towards net zero goals, it acknowledges that “there is a limit to how far the private sector and voluntary initiatives can push the development”. The strategy, therefore, presents an ambitious plan to refocus business interests to deliver above and beyond for net zero.

The aim is to create a ‘virtuous cycle’ between the financial sector and the real economy, with expectations from the finance sector passed onto corporates.

Looking at more short-term deliverables, we understand officials are thinking about how they might recognise the role of private finance at COP26 itself. This includes developing a platform at which financial companies can present their commitments, both to get recognition and help create a sense of peer pressure. The aim is to create a ‘virtuous cycle’ between the financial sector and the real economy, with expectations from the finance sector passed onto corporates.

Alongside more outward-facing initiatives like the platform, officials are exploring technical collaboration that can help companies understand what needs to be done to meet climate goals. In the coming months, we are likely to see HM Treasury build more specific asks around the disclosure of climate risk and activity. As officials plan to build specific metric tools to help firms assess their own impact on climate change, they will look to companies to embed these tools in the long-run and apply pressure on their competitors to follow suit.

In the coming months, businesses should be factoring COP26 into their public affairs planning and look to commit to long-term net zero organisational goals if they want to engage positively with Government. If we are truly going to turn the tide against climate change, efforts to mobilise the financing of net zero commitments will be key. As Carney highlights in the Private Finance strategy, sustainable financing may be increasing, but the world is still collectively well behind the curve.