The U.N. COP26 conference has highlighted the critical roles financial regulators and institutions will play in transitioning the global economy and achieving global net zero carbon emissions. Climate finance commitments, both public and private, have been made by governments, regulators, and global financial institutions but future work remains to achieve all of the goals laid out at COP26. Private investment commitments should expect heightened attention from investors and regulators focused on their commitment progress, including how it is measured and reported. Concurrent with “Finance Day”, the IFRS announced the creation of the International Sustainability Standards Board (ISSB), which will propose “comprehensive” global sustainability disclosure standards. Financial regulators in the U.S. reiterated their commitment to integrating climate-related risk into supervision.
The United Nation’s Climate Summit, or COP 26 (the 26th Climate Change Conference of the Partners) has commenced, bringing together global delegates between October 31 and November 12 with the goal of solidifying plans settled in the 2015 Paris Agreement by:
- Securing the reduction of global carbon emissions to net zero by 2050
- Adapting and protecting communities and ecosystems
- Mobilizing the public and private climate finance required to secure net zero.
Highlights related to the COP26 “Finance Day” (November 3) follow.
- Public sector commitments. Public sector financial initiatives target the development of the infrastructure needed to transition to renewable, cleaner, and more resilient economies.
— Developed countries previously agreed to mobilize at least $100 billion in climate finance annually beginning 2020 to support the transition in developing countries.
— Many governments have made public finance commitments towards the $100 billion goal, though work remains to ensure the goal is achieved.
- Private sector commitments. Private sector finance will fund the technology and innovation that is needed to support comprehensive economic transition and achieve the global net zero goal.
— The members of the alliance are all members of the United Nations Race to Zero and have committed to transition their own investments and businesses to net zero by 2050. In addition, they have committed to 2030 interim targets and to provide annual reporting on all of their financing activity. This will include using “PCAF” standards for tracking emissions as well as access to external technical advisory panels.
- New standards board. The International Financial Reporting Standards Foundation (IFRS) announced the formation of a new International Sustainability Standards Board (ISSB), which will create a “comprehensive” global baseline for sustainability disclosure standards. In addition, IFRS announced:
— Consolidation of the Climate Disclosure Standards Board (CDSB – an initiative of CDP) and the Value Reporting Foundation (which houses the Integrated Reporting Framework and the SASB Standards) by June 2022.
— Publication of prototype climate and general disclosure requirements developed through a collaboration of the CDSB, VRF, IASB, WEF, and TCFD and supported by IOSCO.
- Central bank commitments. The Central Banks and Supervisors Network for Greening the Financial Systems (NGFS) released its Glasgow Declaration reiterating the readiness of its members (including central banks and financial regulators) to participate in meeting the objectives of the Paris Agreement through efforts that include adopting TCFD-aligned reporting standards for central banks, helping to bridge data gaps, and continuing to assess climate-related risks to financial systems.
- U.S. Regulator Actions. The Federal Reserve, OCC, and New York Statement Department of Financial Services (NYDFS), the only U.S. members of the NGFS, each issued statements in concurrence with the NGFS declaration. OCC and NYDFS also announced new initiatives.
— Federal Reserve stated it will address climate-related risks in an “analytically rigorous, transparent, and collaborative way” through engagement with federal regulators; international participation with FSB, BCBS, and NGFS; and the private sector.
— OCC announced plans to develop high-level climate risk management supervisory expectations for large banks, and to issue framework guidance for comment by the end of the year.
— NYDFS announced the establishment of a new Climate Risk Division, which will integrate climate risks into the supervision of NYDFS-regulated entities.
Please also refer to:
- KPMG Financial Reporting View, Defining Issues: International Sustainability Standards Board announced, which is available here.
- KPMG Regulatory Alert, Climate Reporting | Recent updates impacting financial services, which highlights the TCFD’s final guidance on metrics, targets, and transition plans as well as the administration’s Roadmap to Build a Climate-Resilient Economy. The Regulatory Alert is available here.