Yellen, Sunak push for transparency around climate financing

US treasury secretary and UK chancellor outline need for financial services to aid transition to net zero

By Jeremy Chan | 22 April 2021

As President Joe Biden is set to host a two-day climate summit starting today, the US treasury secretary and UK chancellor stressed the need for financial services to adopt and invest in sustainable finance.

“The Biden administration is taking a whole of government approach to aggressively tackle climate change”, said Janet Yellen, the US treasury secretary when speaking during the IIF’s Sustainable Finance Summit.

“My goal with the treasury is to support this work with the whole of economy approach.”

The investment needed to bring the economy towards net-zero will be substantial. The OECD estimates that $6.3trn is needed every year until 2030 to meet sustainability goals. The figure then grows to $6.9trn in order to meet the goals of the Paris Agreement.

Secretary Yellen said the majority of capital will need to come from the private sector.

“One estimate placed the needed incremental investments at over $2.5trn for the US alone. Private capital will need to fill most of that gap.”

Mark Carney, UN Special Envoy for Climate Action and Finance announced yesterday the Glasgow Financial Alliance for Net Zero. 43 banks including HSBC, Citi and BNP Paribas have already joined the alliance, committing themselves to net zero carbon emissions for both their own operations and that of their lending and investment portfolio by 2050. They would also be required to set interim targets by 2030 or sooner.

“It's going to be tremendously important for the financial services industry to marshal and allocate capital that's needed to make the transition toward net zero,” Yellen said.

One of the key challenges to increase investment in sustainable finance is that lack of universal standards in reporting climate related risks.

“The current financial reporting system is not producing the reliable, consistent and comparable disclosures needed for investors to accurately compare climate related risks and opportunities across companies,” she said.

“Reliability of climate related disclosures is the threshold issue. Investors fundamentally need accessible and credible information to be able to properly assess the risks and opportunities.”

As such, the treasury department and the Security Exchange Commission (SEC) is helping to support the International Financial Reporting Standard Foundations (IFRS) in establishing a sustainability standards board. The IFRS hopes to have established the sustainability standards board before COP26 in November.

At the same event, UK chancellor Rishi Sunak outlined the need for financial markets to seize the opportunities in sustainable finance.

“What's happening right now is an irreversible shift in global finance. Climate change is already disrupting the way we do business, the way we insure risk and the way investors manage capital,” he said.

“The more effectively our financial services system can change to support the net zero world, the more it will thrive.”

The UK will be one of the first advanced economies to adopt Financial Stability Board’s (FSB), Task Force on Climate-related Financial Disclosures (TCFD) recommended guidelines. By 2025, climate related financial disclosures will be mandatory for businesses in the UK.

“With an industry managing almost £10trn of assets, an insurance sector generating £280bn in premiums and a global market share of 15 percent of cross border bank lending, the UK has a duty to act,” he said.

The UK government will also be rolling out a sovereign green bond later this year as well as a green retail savings bond.

Sunak said he wanted progress to be made within climate-related financial disclosures and greater capital investment in climate aligned investment.

“Disclosures are the big tangible outcome that I hope we can make great progress on this year,” he said. Alongside that I would probably put climate finance, we've got ambitions to double the amount of climate finance over the next few years.”

 

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