- Financial institutions and regulators have refocused attention on climate finance.
- A flurry of announcements are being made ahead of the UN Cop 27.
- Climate finance is the need of the hour.
Two banks have made further moves to curb some direct financing of fossil fuel activity, although there is likely to be further scrutiny on this topic at Cop 27. UN special envoy for climate action and co-chair of the Glasgow Financial Alliance for Net Zero (GFANZ) Mark Carney this week stressed the role of finance to hit climate goals.
Phasing Out Fossil Energy
UK bank Lloyds Banking Group earlier this month confirmed that it would no longer support direct financing — either through project finance or reserve-based lending — of new greenfield oil and gas developments, defined as those which did not receive approval before the end of 2021. “Our exposure to fossil fuels is minimal, but the sector remains a priority focus for us,” Lloyds said.
UK-headquartered bank HSBC plans to phase out coal-fired power and thermal coal mining from its listed holdings, with a deadline of 2030 for the EU and OECD countries and 2040 for the rest of the world, it said in late September. “We have already stopped direct investments in new or existing thermal coal projects…” HSBC said.
Fossil fuel divestment can be controversial, as it does not immediately result in real-terms emissions reduction.
Non-profit CDP confirmed earlier this month that it has seen a record year to date in terms of organizations making climate disclosures. Companies making environmental disclosures through CDP in 2022 rose by 38pc on the year to almost 20,000, it said.
UK regulator the Financial Conduct Authority (FCA) this week set out a draft of proposed rules for sustainability-linked investment products, including restrictions on the use of certain ‘green’ terms, to tackle so-called greenwashing. Although climate reporting remains largely voluntary, Carney noted that “a voluntary system… is better than no system.“
Mandatory reporting will come into effect across several jurisdictions in the next few years, with a proposal from the US earlier this year. Mandatory reporting came into force for large UK-registered companies and financial institutions for financial years starting after 6 April 2022.
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