Chancellor sets out plans to make UK the world’s first net zero financial centre

Today the Chancellor will set out the UK’s plans to become the world’s first net zero aligned financial centre and welcome “historic” climate commitments from private companies covering $130 trillion of financial assets as he hosts Finance Day at COP26.

These commitments will help to create a huge pool of cash that could fund our net zero transition, including the move away from coal, the shift to electric cars, and the planting of more trees.

Convening the largest ever meeting of finance leaders on climate change, Rishi Sunak will set out the UK’s “responsibility to lead the way” and unveil a fresh push to decarbonise our world-leading financial centre. Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050.

To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups. In his opening keynote at Finance Day, Mr Sunak will hail the progress made to “rewire the entire global financial system for net zero” under the UK’s leadership of COP and reveal that over $130 trillion – around 40% of the world’s financial assets – is now being aligned with the climate goals in the Paris Agreement, including limiting global warming to 1.5C.

These commitments come from over 450 firms from all parts of the financial industry, based in 45 countries across six continents, and have been delivered through the Glasgow Financial Alliance for Net Zero (GFANZ), which was launched by the UK to harness the power of the financial sector in the transition to net zero. The UK has also worked as chair of the G7, and in partnership with other G20 countries, to ensure all economic and financial decisions take the risks of climate change into account. The UK has convened over 30 advanced and developing countries from across 6 continents and representing over 70% of global GDP to back the creation of a new global climate reporting standards by the IFRS Foundation to give investors the information they need to fund net zero.

Celebrating this progress, the Chancellor will urge financial firms to “mobilise private finance quickly and at scale” and call on governments to enact bold climate policies to take advantage of these enormous financial resources. Reiterating the importance the UK COP Presidency has placed on getting finance to the most vulnerable countries, Mr Sunak will also highlight that the $100 billion climate finance target will be met by 2023 and urge developed countries to boost their support to developing countries – including by helping them tap into the trillions of dollars committed to net zero by the private sector.

The UK will seek to address barriers to finance faced by developing countries with a series of new green initiatives funded from its international climate finance (ICF) commitment, including £100 million to respond to recommendations from the UK co-chaired Taskforce on Access to Climate Finance to make it faster and easier for developing countries to access finance for their climate plans.

In total, the UK will spend £576 million on a package of initiatives to mobilise finance into emerging markets and developing economies, including £66 million to expand the UK’s MOBILIST programme, which helps to develop new investment products which can be listed on public markets and attract different types of investors. And in a further advance towards the $100 billion goal, the Chancellor will announce the launch of an innovative new financing mechanism – the Climate Investment Funds’ Capital Markets Mechanism (CCMM) – that will boost investment into clean energy like solar and wind power in developing countries.

The UK is already the biggest donor to the multilateral Climate Investment Funds, having contributed £2.5 billion, and will now give the returns from its investments (known as reflows) to CCMM. This new fund will use reflows to help it issue green bonds worth billions of pounds in the City of London – the world’s leading green finance centre – and could leverage an extra $30-70 billion from other sources for specific clean energy projects.

In response to the chancellor’s announcement, Sam Alvis, head of green renewal at the environmentalist think tank the Green Alliance, said: “Finance ministers being front and centre at a UN Climate Summit for the first time is welcome. It is definite progress that the chancellor has got the Treasury on the pitch at COP26. But trillions of dollars are still flowing to fossil fuels every day and voluntary measures have not got us far enough.

He went on: “To keep the 1.5 degree target alive, governments will need to regulate companies not just to publish transition plans but have strict criteria with legal bite on their credibility and pace. For world leaders to truly unleash trillions, they’ll need to rapidly and regularly build on today’s announcements, and of course, get the critical $100 billion of public finance to developing countries across the line.”

Liberal Democrat Leader and former secretary for energy and climate change Ed Davey MP also responded to the plans, saying: “If we do not force fossil fuel money out of the City of London, we will never stop climate change in the UK or the wider world.

“The Chancellor’s plan, that net zero is not to be mandatory for the world’s largest polluters financed in London, is a serious mistake.

“Billions of pounds of the world’s fossil fuel money flood through the City of London: half-hearted plans and Treasury spin are simply not going to change that.”