It’s time for the global financial sector to scale up to support the upcoming transition

As expected, COP26 was heavy on pledges for financing the transition to net zero. These included a commitment to end public financing of fossil fuel projects and a proposal to deliver on the $100bn annual climate finance commitment for vulnerable countries. A consortium of finance firms – banks, insurers and investors – pledged to realign their combined balance sheet of $130 trillion, which constitute 40 percent of all global assets under management, to support the Paris climate goal of 1.5°C.

These pledges did not go as far as some would like. However, we should all be heartened by the progress that was made. Governments came together on critical issues, from deforestation to methane gas. Moreover, the pledges made at COP26 reinforce the importance of financial services to support governments, corporations and communities in the green transition.

The industry must now focus on building the financial infrastructure that will support financing at the speed and scale that this needed. A big part of this work will be providing trust and assurance around ESG and sustainable finance. As climate regulations have increased, so too has the need for a shared baseline of definitions, measurement, and data. Investors need to have confidence that their targets live up to their sustainable credentials. Governments and regulators need to track and compare performance on an equitable basis. Companies need to adapt operations and access a growing pool of ESG-contingent funding.

Although it was signalled to the industry well in advance of COP26, a new standard for ESG reporting officially launched on Finance Day, will go some way to help do this. The International Sustainability Standards Board (ISSB) aims to create a set of globally consistent non-financial reporting standards: ESG reporting as robust as financial reporting is today. As financial organisations contend with their own transformation to climate compliant operations, including recent accusations of greenwashing, a shared baseline cannot come too soon.

As a firm, we have been vocal for some time, from PwC’s Global Chairman Bob Moritz on down, on the need for common ESG reporting standards. Organisations around the world, public and private, need to come together around shared initiatives to accelerate progress to net zero. Prior to COP26, the ISSB published two prototype standards on climate-related disclosures and general sustainability disclosures. The reception to these prototypes has been overwhelmingly positive. The ISSB now needs to move to bring them into force.

Our role at PwC is to help implement them quickly and at the right level. For financial institutions who will be responsible for deploying, managing and insuring much-needed green capital, delivering on the pledges made at COP26 will only happen if it is done in a credible, measurable and transparent way.

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