• Paul Stuart-Smith

Zero carbon finance crucial to limiting global warming this decade

Welcome to the 2020s! As this morning’s newspapers report: potentially “a decade of prosperity and opportunity”, according to the UK Prime Minister, but also, as Prince William warns, the 10 years when we must solve the climate crisis if we are “to save the world”. Their messages need not be incompatible.

Picture: Sky News, Nowra, New South Wales, 1 January 2020.

Tackling global warming and reducing our reliance on fossil fuels presents huge new economic opportunities. But Prince William’s warning comes against the backdrop of apocalyptic-looking bush-fires raging across Australia and, though less dramatic, further extreme weather in the UK, where a new high temperature record for December of 18.7°C was set last Saturday in the Scottish Highlands. Monthly maximum UK temperature records were also broken in February and July last year.

With average global temperatures already 1.1°C above pre-industrial levels, urgent action is clearly needed for the world to have any chance of limiting warming to 1.5 or even 2°C as required by the Paris Agreement, a message reiterated by Mark Carney on Monday.

Speaking on BBC Radio 4, the Bank of England Governor stressed the important role financial firms must play in this through cutting their financing to the fossil fuel industries, both for the sake of the planet and to avoid their investments becoming worthless, or “stranded” as the world economy is forced to decarbonise.

“A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?” challenged Carney. He has warned previously that, “firms ignoring the climate crisis will go bankrupt”.

Carney is also one of the driving forces behind the Taskforce on Climate-related Financial Disclosures (TCFD). This G20 initiative provides a set of recommendations to help companies address the very question Carney now poses. The recommendations direct firms to assess the risks and opportunities to their business models from climate change, implement appropriate governance and risk management processes and then disclose financially-material information about this to investors.

The TCFD recommendations form a central plank of the UK government’s Green Finance Strategy published last July, one of the main aims of which is to ensure that financial risks and opportunities from climate change are integrated into corporate decision making. The government is working with the UK’s four main financial regulatory bodies, the Financial Conduct Authority, the Financial Reporting Council, The Pensions Regulator and the Bank of England to ensure a coordinated approach.

The goal, crucially, is to steer finance towards zero- or low-carbon investments and away from companies risking obsolescence as the UK and other countries target net-zero carbon emissions.