By coming together and being bold in the face of risk, we can revolutionize the role of CFO and strengthen climate resilience in operations, supply chains and the market, argues WEF CFO, Julien Gattoni.
Mark Carney: We’re going to get trillions put to work to decarbonize our economyUN High Level Champion for Climate Action Nigel Topping speaks with UN Special Envoy on Climate Action and Finance Mark Carney about the road to COP26 and their joint initiative, GFANZ which will work to mobilize the trillions of dollars necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement. The coalition, which is to be chaired by Carney, will bring together 160 firms collectively responsible for $70tr of assets under management, including more than 40 banks that are the founding members of a new UN-backed Net Zero Banking Alliance (NZBA).
Nigel Topping: Mark can you tell us about your work for COP26 on private finance – what are you trying to achieve? What does success at Glasgow look like?
Mark Carney: Success means that we have put in place the frameworks, all the information, the tools, the markets, so that every financial decision takes climate change into account.
What we’re looking to do is to get the core of the global financial system – the largest banks, largest insurers, largest pension funds, and everybody in between – in a position so that they are financing the companies in Race to Zero, so that those companies, that are putting in place the new technologies, the new approaches to business, and reducing greenhouse gas emissions, can do that as rapidly as possible. Finance is an enabler. It needs to be ready. We’re making progress. But we’ve got to finish the job for Glasgow.
What’s coming through quite clearly is the importance of transitioning the economy to net zero, and the fundamental role of the financial sector in that transition. Which is why you and I are working together to try to ensure the financial sector plays a leading role in the Race to Zero. Could you tell us more about your long term vision and what some of the steps are to get there?
The first thing is that the financial industry operates on information: they need core disclosure or reporting. The basis of that is something called the TCFD. The UK is leading in terms of getting that type of disclosure mandatory, but it should be everywhere for the largest companies around the world, so there’s that ready information. Secondly, you need banks and insurers who know how to manage risks: risks around climate. Not just the physical risks, but the positive risks, if I can put it that way, of the transition.
Success of the Race to Zero will mean a few things. Firstly, it will mean that certain activities and businesses are no longer profitable, are no longer economic. That’s the way it should be. Because they weren’t truly profitable in a world that fully accounted for the costs of climate change. Whereas other industries’ and businesses’ activities will be very profitable and very successful. So, we need our banks and insurers to think about the future; pulling it forward to the present and supporting those changes.
The other thing we need to do is to build out some new markets, markets in so called blended finance. So, this is for investment in emerging and developing economies, for the infrastructure, for renewable power, for the adaptation that they need. So, we need to use the balance sheets of multilateral development banks and the flows of development finance, in a way that crowds in private sector investment, that turns billions into trillions.
But in parallel to that, and I think very consistent with Race to Zero, is high profile, high level, hugely impactful commitments of our largest financial institutions around the world to net zero. And this is not just in 2050, but near term objectives, near term financial flows, that build off from that new plumbing market infrastructure, flows capital to those businesses that are making the necessary investments to decarbonize our economy in a way that grows jobs and livelihoods.
I’m glad you mentioned that last point, because something that you and I are very aligned on is that, whilst we need the long term targets, it must be about mobilizing finance in the short term. We’ve just launched GFANZ, the Glasgow Financial Alliance for Net Zero, which builds on the work that we’ve done over the last year on the Race to Zero, but can you say little bit about the intention of GFANZ in putting all the different finance actors together in one tent?
The first thing we look for with the Glasgow Financial Alliance for Net Zero is to broaden across all of the main actors in the financial sector. So, through your good work and other people’s good work, we have an alliance for asset owners – pension funds and insurers – we have one for asset managers, so the people that manage somebody’s ISA, mutual fund, but we didn’t have one for banks or for insurance underwriters. We’re solving that today with a huge net zero banking alliance. Banks from over 43 institutions, controlling balance sheets are having assets under their control of over $28 trillion. That is an enormous number, committing to net zero, joining this new GFANZ alliance. And we will soon have one for insurance underwriters joining that.
So, we’ve broadened out across the financial sector, we’re going to use the time between now and Glasgow to deepen and expand to get more firms into each of these core pillars. But very importantly, this is about system change. We need those elements of the system to work together towards net zero. There’s learning from each other, in terms of how to manage risks, how to seize opportunities, there’s elements of how the markets work – think credit ratings, think how stock exchanges work – those elements that can be better aligned with this transition to net zero. And having a top table of the main alliances, the main actors, in moving to net zero will help with that coordination. It will also help with a dialogue in terms of government policy, which will help accelerate the transition to net zero because one of the core things, one of the powers of finance, is that it will bring the future forward. And now what we have with GFANZ is $70 trillion+ of assets that are dedicated to net zero. With the right signals, with the right policy, they can get behind this and start pulling forward the Race to Zero and accelerating the race that you’re leading.
It’s really exciting to have GFANZ up and running. And I’m really looking forward to seeing how many more trillions of assets under management we can get committed by Glasgow. But committed not just to the long term change, as you said, but actually making change happen in the next five to 10 years from now.
Absolutely crucial, Nigel. I mean, this is the start. It’s a huge start. But we’re going to get more trillions in, and trillions put to work, in order to decarbonize our economy.
Like I said, you don’t get any prizes for entering the race. You actually have to run it.
This interview took place on 2oth April 2021
With $468 trillion in assets across the globe, fully addressing the climate, biodiversity and land degradation crises – in a way that is aligned with commercial objectives – is fully within the reach of financial markets, writes Frannie Leautier, Partner, CEO of SouthBridge Investment.
Unlocking access to trillions of dollars’ worth of public and private climate finance, especially in developing countries, is critical to achieving the objectives of the UNFCCC, the goals of the Paris Agreement, and the 2030 Agenda for Sustainable Development.