Ambitious plans to create a huge pool of money to invest in a green future will turn the UK into “the world’s first net zero-aligned financial centre”, with companies managing $130 trillion of assets committing to the goal of holding global warming below 1.5C, Rishi Sunak has said.
But campaigners warned that the chancellor’s landmark plan falls short of what is needed to halt the climate crisis and risks amounting to no more than “greenwash” for a sector which has profited massively from decades of pollution.
Mr Sunak faced demands to give financial watchdogs legal powers to enforce commitments made by more than 450 firms from all parts of the financial industry to align their investments with the Paris Agreement climate goals.
And Greenpeace UK said Mr Sunak was coming to the Cop26 summit in Glasgow with “a marketing slogan” in place of the transformative action that was needed for the finance sector.
The groups’ head of politics Rebecca Newsom said: ”The world’s first net zero-aligned financial centre would be one in which financial institutions and companies are required by law at the outset to bring their lending and investments in line with the global goal to limit warming to 1.5C.
“Instead, these new rules seem to allow plenty of wriggle room for financial institutions to continue with business as usual, rather than ‘rewiring’ the system as the chancellor claims. The chancellor is once again falling short of what the climate emergency requires.”
Convening the largest ever meeting of finance leaders on climate change on Wednesday, the chancellor will set out a fresh push to decarbonise the City of London, stating that it is the UK’s “responsibility to lead the way” in a push to “rewire the entire global financial system for net zero”.
Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish transition plans detailing how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050.
A Transition Plan Taskforce made up of industry and academic leaders, regulators, and civil society groups will draw up a “gold standard” for transition plans to guard against greenwashing.
The initiative came as Boris Johnson told the Cop summit that a “big shift in the balance of power” was coming, as consumer pressure and decisions by financial institutions lead to disinvestment in companies involved in deforestation and polluting energy.
Companies committing to green action will have “a democratic consumer price to pay” if they break their pledges, said the prime minister.
The director of the UK Centre for Greening Finance and Investment, Dr Ben Caldecott, described Mr Sunak’s announcement as “huge” and said it would “spur demand for green finance and accelerate decarbonisation, not just in the UK but wherever UK firms do business”.
And the chief executive of the Green Finance Institute, Dr Rhian-Mari Thomas, said it marked “the day that green finance has reached a point of critical momentum”, with “unprecedented” sums now committed to the transition away from a fossil fuel economy.
“The task before us now is to come together in radical collaboration to unlock investment opportunities at speed and scale so we can channel this wall of capital into real economy outcomes that not only positions the UK as the world’s first net-zero financial centre but also delivers a just and resilient net-zero global economy,” said Dr Thomas.
But experts said the new commitments are so weak that City banks, fund managers and insurers will be able to increase the amount of fossil fuels they finance.
As part of the Glasgow Financial Alliance for Net Zero (GFANZ) deal brokered by former Bank of England governor Mark Carney, banks do not have to cut their financing of climate-damaging investment in the short term. Instead they can keep to their commitment by decreasing the “carbon intensity” of their lending.
The watered-down requirement means that a bank or investment fund could lend money for new gas power plants, while reducing funding for coal, thereby cutting its carbon intensity, despite the fact that scientists now largely agree that all new fossil fuel investment needs to stop if average temperature rises are to be kept below 1.5C.
“More than $130 trillion in assets under management and not a single rule to prevent even one dollar from being invested in the expansion of the fossil fuel sector,” said Lucie Pinson, chief executive of Reclaim Finance.
“Once again, the financial sector is willing to puff itself up with hot air commitments instead of enacting the concrete cuts in oil, gas and coal financing we really need.”
The plan is weakened further by the fact that signatories will be able to “mark their own homework”, according to the Green Party.
“They may give themselves a smug A* but the world’s citizens are giving them a big fat fail as they continue to finance the very industries that are driving us to destruction,” said the party’s former MEP Molly Scott Cato.
Bank lobbying groups also played a key role in developing the guidelines that they are now committing to, research by Corporate Europe Observatory (CEO) showed.
CEO, which tracks Brussels lobbying, found that important contributors to the research fronted by Mr Carney included the Net Zero Banking Alliance, a group led by some of the world’s largest financers of fossil fuel projects globally including JP Morgan and Europe’s leading coal investor, Barclays.
CEO researcher Kenneth Haar said: “What we see happening here is basically a privatisation of crucial parts of the international climate policy.
“Even if a financial firm continues to invest massively in fossil fuels, which will be the case without strong regulation, it can still be actively included in the UN agenda on private finance and climate change. Sadly, the upcoming Cop26 looks set to become the biggest finance greenwash event in history.”
And Brid Brennan, researcher at Transnational Institute (TNI) said: “While global popular demand to governments has urged a decisive pullback from the brink of climate change disaster, corporate financiers and polluters have pursued a strategy of privatisation of the UN system and are now positioned to derail any substantive disinvestment from fossil fuels and instead set to implement a big corporate greenwash bonanza.”
The E3G climate change thinktank said that the introduction of mandatory net zero transition plans was “a big step forward”, and said that the work of the new taskforce will be “instrumental” in ensuring that all listed companies and financial institutions put in place high-quality plans.
The think tank’s Kate Levick said: “Financial regulators will have a crucial role to play in enforcing these transition plans to ensure they are credible.”
Mark Campanale, of the Carbon Tracker financial think tank said: “The true cost of reducing emissions for companies would wipe billions off their fixed assets of the fossil fuel system we’ve built up over 200 years of industrialisation. The pipelines, the oil rigs, the coal-fired power stations, the LNG ships will be written off … so destroying value for shareholders.
“Disclosure of asset write-downs cannot be voluntary. Companies and their auditors must be honest about the concrete financial risks.”
