Mark Carney, the United Nations Special Envoy on Climate Action and Finance and former governor of the Bank of Canada and Bank of England, is leading a group of financial services powerhouses in focusing their operations on achieving net-zero carbon emissions.Kirsty Wigglesworth/The Associated Press
Big-name stock exchanges, rating agencies, auditors and index providers have banded together in a group led by former central banker Mark Carney to focus their operations on achieving net-zero carbon emissions as countries prepare to meet to hammer out new commitments in the fight against climate change.
Seventeen organizations, including London Stock Exchange Group , Moody’s Investors Service, S&P Global Inc., PricewaterhouseCoopers and MSCI Inc., have committed to “aligning” their products and services to meet climate targets as part of the group, called the Net Zero Financial Services Providers Alliance, or NZFSPA. None is Canadian-based.
The financial industry, through its allocation of capital, has massive influence on the speed and intensity of cuts to emissions in all sectors of the global economy. Ratings agencies, proxy advisers, stock exchanges and auditors can provide the tools that the banks and asset managers need to assess how the money is best invested to generate financial returns while also having the biggest environmental impact.
The launch is led by Mr. Carney, the United Nations Special Envoy on Climate Action and Finance. The group’s inception enlists another chunk of the world’s financial industry in a push that began in April with the formation of the Glasgow Financial Alliance for Net Zero, or GFANZ, which now includes more than 250 banks, insurers and fund managers, accounting for US$88-trillion in assets.
Mr. Carney, the former governor of the Bank of Canada and Bank of England, was a driving force behind that as well. “By joining the alliance and GFANZ, these firms are committing to ensuring their products and services support a high-ambition, credible net-zero transition that we need to achieve our 1.5-degree goal,” he said in a statement, referring to the target set by the Paris climate accord.
In August, the UN Intergovernmental Panel on Climate Change issued a report spelling out in stark terms the urgency of taking action to reduce emissions. A summer of devastating heat waves, wildfires and destructive storms only raised expectations for multinational proceedings, known as COP26, set for Glasgow in November. The financial sector will play a major role in the talks, aimed at adding new goals and policies to those hammered out in the Paris agreement in 2015.
In Paris, countries agreed to try to limit the global temperature rise to 1.5 to 2 degrees from pre-industrial levels by achieving net-zero emissions by 2050. Scientists say that is necessary to prevent the worst effects of climate change. Getting there involves simultaneously reducing greenhouse gas emissions and offsetting those that can’t be cut.
Under the agreement, members of the Net Zero Financial Services group will set interim goals within the first 12 months of joining to align products and services with climate targets, and report progress using the recommendations of the Task Force on Climate-related Financial Disclosures. The TCFD is seen is as the gold standard for climate reporting. They will also make sure asset managers and financial institutions have the data and products they need to meet their own targets.
The commitments vary for different types of members. Investment advisers will include net-zero investing options and explanations with advice they give clients. Stock exchanges will require, or at least promote, companies to disclose all necessary climate-related data for market players to make investment decisions.
Proxy research and advice providers will take net-zero-aligned corporate policies into account when making recommendations to clients. Bond rating agencies will factor in net-zero initiatives in their assessments of credit risks when they deem it relevant.
Companies that provide ratings on environmental, social and governance factors will do so using consistent methods for vetting net-zero plans among companies, securities and governments.
Jeffrey Jones writes about sustainable finance and the ESG Sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.
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