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Regulations & Resources

COP26 week one recap

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Investor-led initiatives

Owners and managers of more than USD 130 trillion in capital pledged to put the global economy on a path to net-zero.

  • The 450 financial institutions that have committed to net-zero targets as part of the Glasgow Financial Alliance for Net Zero (GFANZ) control a combined USD 130 trillion in assets.
  • GFANZ, which will report on its progress annually, will have an advisory panel comprising 20 independent experts and representatives of seven nongovernmental organizations.
  • Some nongovernmental organizations criticized the pledges for not requiring that firms phase out financing for fossil fuels, limit the use of offsets and require that the commitments include targets for reducing absolute emissions.

Members of the U.N.-based Net Zero Asset Owner Alliance and the U.N.-backed Net Zero Asset Manager Alliance are setting short-term targets.

  • Twenty-nine asset owners that have committed to reducing portfolio emissions by 25-30% by 2025, as well as 43 asset managers that have published targets for 2030 or sooner, according to GFANZ.
  • Twenty-four other major finance initiatives, including the Net Zero Services Providers Alliance spearheaded by MSCI, are on track to help transform the financial architecture for sustainability.
  • Thirty-eight central banks, in countries comprising 67% of the world’s emissions, have committed to climate-related stress tests to review the resilience of financial firms to climate-related risks.

The IFRS Foundation announced the establishment of a new International Sustainability Standards Board (ISSB) to develop climate and sustainability disclosure standards that align with the Task Force on Climate-related Financial Disclosures.

  • Finance ministers and central bank governors from 36 countries, including the U.S., Canada, U.K., EU, Japan, China and India, welcomed the announcement of the ISSB.
  • The U.K. government, in coordination with GFANZ, is setting up a Transition Plan Taskforce to develop a “gold standard” for transition plans and cutting-edge metrics.

The London Stock Exchange (LSE) announced that it plans to launch listed carbon funds that would allow investors to buy carbon offsets.

  • The LSE said it would design a “new market solution” for carbon offsets to accelerate investment into the units – each of which are supposed to represent a ton of carbon that has been permanently avoided or removed from the atmosphere.
  • Under the plan, investors would be able to buy into listed carbon funds that give them access to offsets, which they could either use to compensate for their own emissions or sell to other buyers.
  • The LSE added that it would use the “best practice” guidance for which offsets should be permitted in the system being developed by the Task Force on Scaling Voluntary Carbon Markets.

Multilateral initiatives

One-hundred five countries joined the Global Methane Pledge, a U.S./EU-led commitment to cut global methane emissions by at least 30% from 2020 levels by 2030.

  • Countries that have committed to the pledge include Canada, Nigeria and Brazil (all major emitters of methane) and represent about 40% of global methane emissions.
  • Emitters in the U.S. would pay USD 900 per ton of leaked methane starting in 2024, increasing to USD 1,500 per ton from 2026 to 2030.
  • Reducing methane could help to slow warming in the short term. Though methane has a warming potential of more than 80 times that of carbon dioxide (CO2), it remains in the atmosphere for only 12 years, compared with up to centuries for CO2.
  • Efforts to reduce methane are relatively low cost. A recent U.N. report found that low-cost measures alone could reduce methane emissions from the fossil fuel, waste and agriculture sectors by 20% annually.
  • This interactive chart from MSCI shows the largest emitters of methane and CO2 in the U.S. oil and gas industry.

At least 130 countries backed a plan to end deforestation and land degradation by 2030.

  • The Glasgow Leaders’ Declaration on Forests and Land Use includes support from Brazil, the U.S., the European Union, Russia and China.
  • Countries supporting the declaration account for 91% of global forests.
  • A mix of countries and financial institutions pledge USD $19.2 billion in public and private money.
  • The financing will include funds to restore land, tackle wildfires and support indigenous communities.
  • Nongovernmental organizations expressed some skepticism, noting that the plan announced at COP26 isn’t binding.
  • Indonesia, home to one-third of the world’s rainforests, initially backed the plan to end deforestation but later reversed its position, calling the plan “unfair.”

More than 40 countries made new commitments to end the use of coal power and to stop financing coal plants outside their borders.

  • They include Poland, Vietnam, South Korea, Egypt, Spain, Nepal, Singapore, Chile and Ukraine.
  • Still, countries that account for the lion’s share of the world’s coal use – including Australia, India, China and the U.S. – did not join.
  • The phase-out is aimed for the 2030s for developed economies and 2040s for emerging economies – which climate advocates say is not fast enough.
  • In addition, more than 20 countries and institutions, including the U.S., U.K., Canada and Italy, committed to end international development financing for coal, oil and gas by the end of 2022 (except in limited circumstances consistent with 1.5°C warming), and to prioritize clean energy finance.
  • A group of international lenders, including HSBC and Fidelity International, agreed to end coal financing.

At least 42 countries agreed to work together to support the development of clean technologies.

  • Supporters of the Glasgow Breakthrough Agenda include nations that collectively represent more than 70% of the world economy, including the U.S., India and the European Union.
  • The plan aims to scale development of clean power, zero-emission vehicles, near-zero-emission steel, low-carbon hydrogen and sustainable agriculture by 2030.
  • Mechanisms include pooling research and development, coordinating investment and spurring support from private investors.

Developed countries affirmed their pledge of USD 100 billion a year for five years to help developing countries reach their climate targets.

  • But the funding, which had been set to start in 2020, would now start in 2023.

Forty-five countries pledged to step-up protection of nature and shift to more sustainable ways of farming.

  • They include the U.S., Germany, Japan and India.
  • The pledge includes leveraging USD 4 billion in public investment to help spur innovation in developing crops that are more resilient to weather extremes.
  • The global food system accounts for about a third of global greenhouse gas emissions and destroys more nature every year than any other industry, mainly via deforestation. About half of that comes from the production of meat (especially beef) and threatens the production of other crops.
  • In addition to funding and innovation, more sustainable agriculture will require structural changes to public subsidies and support systems in many countries.
  • The World Bank has pledged to spending USD 25 billion in climate finance annually to 2025, with a focus on agriculture and food systems.

Ten countries joined the Global Ocean Alliance 30by30 initiative, which aims to protect at 30% of the world’s ocean by 2030.

  • Bahrain, Jamaica, St Lucia, Sri Lanka, Saudi Arabia, India, Qatar, Samoa, Tonga, Gambia and Georgia backed the U.K.-led initiative, which is now supported by more than 100 countries.

Countries announced a partnership to speed South Africa’s energy transition.

  • The commitment comes from the U.K, the U.S, France, Germany and the European Union.
  • The pact would make USD 8.5 billion available over the next five years to help South Africa –the world’s most carbon-intensive electricity producer – achieve its goal of transitioning to clean energy.

Leaders from the G20 agreed to phase out investments in offshore coal plants by the end of this year.

  • The countries committed to mobilize international public and private finance to support green, inclusive and sustainable energy development.

The U.S., U.K., Canada, the EU and several other countries pledged to support a just transition.

  • The concept commits signatories to address the impacts of a net-zero transition on workers and communities.
  • An unjust transition could lead to mass migration, social unrest, and political instability that would contribute to systemic risk and could make it harder to execute on the climate transition.

The EU and China proposed a framework for sustainable investment.

  • The Common Ground Taxonomy aims to improve both the comparability and interoperability of taxonomies for green investment.

 

Country commitments

The Biden Administration unveiled a long-term U.S. climate strategy.

  • The plan would align the U.S. over 30 years with the goal of keeping temperature rise to 1.5°C through investment in clean power, reduced carbon emissions and innovation in transportation and building, and support for natural lands.
  • If the US is able to execute on this plan, it would dramatically ratchet up pressure on certain industries, especially utilities. Though the transition could mean higher costs in the near term (because many companies are currently unprepared for a rapid transition), it could create opportunities for companies and investors alike in green solutions.
  • The infrastructure bill passed by Congress includes USD 47 billion for climate adaption and resilience. The spending, which addresses the physical impacts of climate change, may spur funding for companies in construction and engineering.

India committed to its first net-zero target; the country pledged to reach net-zero by 2070.

  • The country, the world’s third-largest emitter of greenhouse gases, said it would meet half of its energy requirements through renewables by 2030, up from 40% it had pledged to achieve previously.
  • Still, the plan did not map out a clear goal for cutting emissions between now and 2030, making it hard to see how India intends to achieve its long-term goal.
  • Nor did the plan address its reliance on coal or its continuing to build new coal plants and subsidize the coal industry.

Brazil said it would aim for net-zero by 2050 instead of 2060.

  • Though the country did not elaborate on its plans to reach net-zero, it did sign the declaration against deforestation.
  • That could be significant because Brazil’s agriculture sector, particularly beef and soy producers, depend heavily on clearing forests.

Nigeria pledged to reach net-zero emissions by 2060.

  • The country, Africa’s biggest oil producer, could cut emissions by nearly half from business as usual by 2030 if it receives financial assistance and technology from international partners, President Muhammadu Buhari said.

Canada said it would commit at least 20% of its USD 5.3 billion international climate finance over the next five years to limit biodiversity loss.

  • The U.K. and France similarly earmarked funding for biodiversity solutions earlier this year.

A number of countries pledge additional sums to support climate finance in developing countries.

  • The U.K. announced a package of USD 786 million to mobilize finance to fund the green transition in emerging markets and developing economies.
  • Japan committed USD 10 billion to help countries in Asia.
  • Norway said it would double its climate finance to USD 1.6 billion.
  • Denmark pledged to mobilize at least USD 1 billion by 2023.
  • Australia pledged USD 500 million to address climate change in the Asia-Pacific region.

The head of the International Energy Agency said the world could limit warming to 1.8°C if all net-zero and global methane pledges are met.

  • But said that the chance keeping warming to 1.5°C are virtually nil if the U.S. and China do not pledge to phase out their use of coal.

Regulatory initiatives

The U.S. Department of Energy announced a plan to dramatically lower the cost of technology that removes carbon dioxide (CO2) from the air.

  • The “Carbon Negative Shot” aims to spur innovation that would lower the price for capturing and storing CO2 to less than USD 100/ton of CO2 equivalent.
  • That’s considerably less than current carbon removal technology, which can cost roughly USD 2,000 per ton of CO2e.
  • Developing the technology and deploying it at scale will require significant investments in research and development, the Energy Department said.

The European Central Bank (ECB) announced a pledge on climate change action. The ECB said it would:

  • Integrate climate-related risks into financial stability monitoring and prudential supervision of bank climate stress tests for banks in 2022.
  • Integrate sustainability factors into own portfolio management.
  • Explore the effects of climate-related risks on the Eurosystem monetary policy framework (including assessing how credit risk agencies include climate-related risks in credit ratings, climate disclosure requirements for private sector assets used as collateral climate rules for corporate sector asset purchases) by 2022.
  • Bridge gaps in climate-related data, including developing climate change metrics and indicators to help bridge data gaps in the area of physical risks, the carbon footprint of financial institutions’ portfolios and green financial instruments, all by the end of 2022.
  • Work toward higher awareness and intellectual capacity on climate change, also through technical assistance and knowledge sharing.

The U.S. Office of the Comptroller of the Currency (OCC) issued a statement supporting the Network for Greening the Financial System Glasgow Declaration on fostering cooperation and action on climate change by central banks and supervisors.

  • The OCC said it plans to develop high-level climate risk management supervisory expectations for large banks and issue framework guidance for comment by the end of the year.

The International Association of Securities Commissions (IOSCO) released an update on its plans for this year and next. The association said it would:

  • Publish, by the end of this year, a detailed analysis of the disclosure issues facing both issuers and asset managers and its assessment of sustainability data and ratings.
  • Assess in 2022, ISSB’s draft climate disclosure standard, in parallel with stakeholder consultations by the ISSB.
  • Aim is to endorse the standard before the end of 2022, if it is satisfied that the standard sets a practical and effective global baseline for climate disclosures to financial markets across the globe.

Additional initiatives

  • A group of 12 financial firms committed to support the Sustainable Market Initiative’s Natural Capital Investment Alliance, which aims to mobilize at least $10 billion in capital to protect biodiversity.
  • More than 80 countries signed onto the Green Grids Initiative, a U.K.-India led effort to interconnect countries to high-quality sources of renewable power.
  • The Global Energy Alliance for People & Planet – an effort to support clean energy development in the Global South – launched with USD 10 billion in funding from the Rockefeller Foundation, the IKEA Foundation and the Bezos Earth Fund.
  • The U.S.- and United Araba Emirates-led AIM4C – an initiative to support innovation in climate agriculture and food systems, launched with the support of more than 30 countries and USD 4 billion in support.
  • The U.S. announced the Net Zero World Initiative, which aims to provide funding and expertise to help countries reach net-zero.
  • Bill Gates announced the Breakthrough Energy Catalyst, which aims to catalyze up to USD 30 billion to create markets for green hydrogen, direct air capture, long-duration energy storage and sustainable aviation fuel.
  • The U.S.-led First Movers Coalition announces its buyers’ club of 25 global companies that commit to purchasing clean technologies in such sectors as steel, trucking, aviation, shipping, aluminum, concrete, chemicals and direct air capture.
  • Multilateral Development Banks (MDBs) pledged to increase climate finance, including the amount of finance available to support mitigation and adaptation initiatives.
    • The MDBs said they would use platforms, investment vehicles and blended finance instruments that are fit for purpose.
  • The U.N. released its latest Adaptation Gap Report, which indicates that the world needs to spend between five and 10 times more to help people in developing economies adapt to climate change-driven natural disasters.
  • The Council for Inclusive Capitalism proposed a framework for the transition to net-zero that can guide companies in addressing impacts on workers and communities.