The finance sector, COP26 and building a connected global green economy.

They say money makes the world go round. With COP26 on the horizon, that well-known saying has added currency. But how will the UK’s financial sector be playing its part? Gina V Hall, the Carbon Trust’s Investment Director and Global Head of Sustainable Finance, investigates…

There's no question that financial institutions are engaged with COP26. They see it as an opportunity to showcase some of the innovative financing schemes they're working on.

Organisations we’re collaborating with see it as a deadline for them to be making commitments about new ways of financing. For example, initiatives that create blended finance opportunities, rounding up private investors and public sector players to invest in big infrastructure projects. But it’s incredibly important to ensure that what's built is sustainable. We're involved in a particular project – alongside a major UK financial institution – around a labelling scheme so that investors can identify when a given infrastructure project has met a high bar for sustainability.

We also expect there to be more commitment to green financing at COP26. The UK government has announced its own Sovereign Green Bond (or ‘Green Gilt’) this year, and we think this is going to further encourage other countries to do the same.  And not just countries.  The market is booming in green bonds, with cumulative issuance passing the $1 trillion mark at the end of last year and a record volume of issuances in the first half of 2021. The rapid growth in green bonds is encouraging more private companies, as well as the public sector, to review their core activities and how they access this capital. The knock-on effect of this should be an acceleration of green activities.  As a leader in green bond listings, the London Stock Exchange will no doubt continue innovating to help drive this growth.

Another hot topic is climate-related disclosures, and we hope we’ll see more organisations engage at COP26. We think it’s incredibly important for everyone to take up the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). The government intends for the UK to be the first G20 country to make TCFD mandatory, and we think that’s crucial in reaching a net zero future. But it also makes business sense in this uncertain world we find ourselves in – not just for the big global leaders who, of course, have more resources to commit to disclosing, but for smaller organisations, too.

For starters, the financial sector is a data-driven industry. Investors are working hard to embed climate-related factors into their risk analysis for investments, loans or equity positions. They’re asking questions such as: “Do I want to hold the bonds of this particular company?” TCFD disclosure is not just a tick-box exercise. It provides a robust framework to help investors with those questions, and so it is very much in an investee company’s interest to use it to tell their sustainability story in a much more coherent way. The data that companies gather for disclosures, the analysis they do, and the strategic thinking around their supply chain is really valuable – both to them and to their investors. It helps businesses line up their strategy with market trends, and boost access to capital. The Carbon Trust is there to support organisations on that journey.

While other countries are sitting up and taking notice of what we’re doing in the UK, what we really need is for China to show up at COP26, in a meaningful way, to tackle decarbonisation and put the planet on a pathway to net zero. We’re always going to get there quicker if there’s a race to the top. And if it makes good financial sense, we can get there even faster.

4 August 2021

Climate Action