Looking back, 3rd November 2021 will be seen as a landmark day for climate finance. At COP26 in Glasgow, public and private sector leaders gathered for the UN climate negotiations’ first ever dedicated “Finance Day”. It was the first time that the financial industry was made a core focus within the annual processes of the UN Framework Convention on Climate Change. With it came a swathe of high-profile announcements and three important new kids on the sustainable finance block – albeit adding to the ever-expanding number of acronyms in this space.
Let’s zero in on each of the three: “ISSB”, “GFANZ” and “TPT”.
- ISSB – To act on sustainability priorities, financial industry participants need reliable and globally consistent data. The move by the IFRS Foundation to announce the creation of the International Sustainability Standards Board was a much-anticipated milestone in this regard. Chaired by Emmanuel Faber, the former CEO of Danone, the ISSB seeks to consolidate leading sustainability disclosure initiatives, and create a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.
- GFANZ – Led by Mark Carney, former Governor of the Bank of England and UN Special Envoy for Climate Action and Finance, a group of 450 financial firms across 45 countries formed the Glasgow Financial Alliance for Net Zero. As part of its efforts to facilitate decarbonisation, GFANZ would go on to develop a global approach and structure for both financial institution and real economy transition plans.
- TPT – In a keynote speech for the COP26 Presidency, then-Chancellor Rishi Sunak set an ambitious objective to make the UK the “first ever Net Zero-aligned Financial Centre”. The central tenet of this plan: a new Transition Plan Taskforce that would set the “gold standard” for climate transition plan disclosure, with the Government moving towards making it a requirement for UK companies.
Just under two years on, the TPT celebrated the publication of its final Disclosure Framework for best-practice climate transition plans, with a market open ceremony here at LSEG. A huge amount of work has gone into this, with over twenty working groups and sub-groups representing over a hundred different organisations, and consultations with many 100s of detailed responses. LSEG is proud to have contributed as a TPT member.
If adopted widely – and ultimately made a mandatory reporting requirement – the Disclosure Framework could play a key role in fostering engagement and capital flows between the real economy and the financial industry to enable the climate transition. By enhancing the availability of information on how companies across the economy intend to decarbonise, it can facilitate more efficient and effective allocation of capital to accelerate the transition to net zero.
It's important to call out that this work is not about demonising particular parts of the economy – in fact, far from it. This is about supporting all sectors, including high carbon industries, in setting out clear and credible transition plans which help them to engage more effectively with the financial industry, many of whom are setting climate finance and investment objectives themselves.
In parallel to the TPT’s work, GFANZ has brought together existing materials to establish a global Net Zero Transition Plans framework, and the ISSB has launched its inaugural IFRS Sustainability Disclosure Standards, with a reference to the publication of transition plans in its climate standard.
The ISSB, GFANZ and TPT frameworks are complementary, and can bring about a more consistent international approach to the development and publication of transition plans.
LSEG thinks about the frameworks as a pyramid structure – starting from the base:
- ISSB sets a global standard for corporate sustainability and climate reporting. It does reference the publication of transition plans, but does not detail what is in a transition plan.
- GFANZ has outlined a structure for transition planning and plans for both financial institutions and the real economy, and has been developing a range of associated tools to enable transition finance.
- TPT provides the gold standard for the disclosure of transition plans, which can be applied in a voluntary context but is also ready for application in domestic regulation. The framework uses the same five components used by GFANZ (Foundations; Implementation Strategy; Engagement Strategy; Metrics and Targets; Governance) as well as the same underlying sub-components.
For a visual illustration, see the figure below, which LSEG created in collaboration with stakeholders across the three initiatives.
At the launch of the TPT’s final Disclosure Framework on 9 October, we were delighted to have Mary Shapiro, Vice-Chair of GFANZ, and Sue Lloyd, Vice-Chair of ISSB, both taking part and signalling the collaborative and complementary nature of their initiatives.
As policymakers around the world consider how to address decarbonisation, the UK’s initiative provides a model for facilitating more consistent climate-related information and transition planning. International fragmentation in disclosures could undermine the effective management of climate risks and opportunities, and the TPT framework shows how domestic guidance can align with a global approach.
LSEG supports global adoption of the ISSB standards by 2025, and encourages the introduction of economy-wide transition plan disclosure requirements to bring decision-useful information to the investment and finance community.
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