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Turning Climate Pledges in to Plans

LSEG’s Group Head of Sustainability Jane Goodland speaks to David Schwimmer, LSEG’s Chief Executive Officer, to discuss the critical role that the financial services sector has to play in climate action.

The conversation focuses on how the industry is facilitating investment to reduce emissions via voluntary carbon markets, and is also leading change in disclosure and regulatory standards to ensure effective capital allocation and delivery of mandated climate transition plans.

The Net Zero Conversations series was filmed at the Net Zero Delivery Summit, hosted by the City of London Corporation in association with the COP 26 UK Presidency 2022 and the Glasgow Financial Alliance for Net Zero (GFANZ).

  • Jane Goodland:
    David, welcome, and thank you for joining us on Net Zero Conversations today.

    David Schwimmer:
    It's great to be here, Jane. Thank you very much.

    Jane Goodland:
    So the finance sector made some really big pledges back in last year at COP26. The question that we all have, though, is how do we really start to change those pledges into plans and plans into action?

    David Schwimmer:
    So, you're absolutely right. Some significant pledges, some significant commitments at COP26, in terms of phasing down coal, in terms of a number of other things, in terms of really the role of finance. It was known as the first finance COP. And I think that's legitimate, and a pretty significant engagement by the financial sector, and a real follow up in terms of the commitment that we've seen since then.

    So, to your point of taking pledges and turning them into plans, taking the plans and turning them into actions, we are seeing that. And I'm seeing that, for example, in GFANZ, which made a big, significant appearance at Glasgow. And then we've had a number of work streams ongoing since then. I'm involved in co-leading the real economy transition work stream, but there are a number of other work streams that are really trying to get into, I'll say some of the details and some of the nitty gritty of determining standards, determining particular issues that we can work through and where we can make progress in. And these are all some challenging issues, and there are no easy answers, but we are seeing some real progress.

    And then we're also seeing some progress in terms of the behaviour of companies, corporates, asset managers, asset owners, and the financial sector more broadly. So it feels like we're making progress.

    Jane Goodland:
    Now, carbon markets, an interesting part of the market. We've got compliance markets in some parts of the world. What's the role of voluntary carbon markets, do you think, as we move to a more sustainable economy?

    David Schwimmer:
    So voluntary carbon markets do have a role to play. It is not a substitute for decarbonization, but we will get to a point, and in many ways there are opportunities to exercise this now, where there are aspects of the world that we cannot decarbonize. So if we can create through voluntary carbon markets a market that allows the raising of capital to finance projects that will help mitigate carbon emissions, that is valuable in and of itself.

    It is also a way of raising capital to allocate to these mitigation projects in a number of emerging markets, developing markets, where there is a huge opportunity with the availability of capital to drive reduction of carbon emissions. And so I do think a significant opportunity for voluntary carbon markets.

    The London Stock Exchange at Glasgow announced our plans to build and launch a voluntary carbon market. This morning, we issued a public market consultation around the market rules that we have set up for that. So, making good progress there and looking forward to that launch of the market in the coming months, and then using the capital raised on that market to finance these mitigation projects. I think it'll be very useful.

    Jane Goodland:
    Yeah, that seems like a really tangible kind of deliverable of some of the change. When we think about the policy environment that we're operating in, can you talk to me a little bit about what you think that policy makers around the world should be doing to create the environment within which investors, other financial institutions, and the real economy companies can really start to accelerate these transitions, because we need the right policy environment, right?

    David Schwimmer:
    So, in some ways there's this sense that we've made a lot of progress in terms of, for example, disclosure of emissions, but the work we've done, the research our team has done, shows that 42% of large caps and mid-caps globally have not disclosed their scope one, scope two emissions. So that's a big percentage. So, we have a long way to go there. A lot of the disclosure that is done is of mixed quality.

    And then we've also done some research through our index business, FTSE Russell, that where there are disclosure gaps, investors make estimates, and a large percentage of the time they're way off in terms of those estimates. So, we have a real issue here in terms of disclosure, in terms of the quality of disclosure, and then in terms of what happens when we don't have the disclosure. So that is an obvious area, an obvious opportunity for the regulators to step in, and this is on a global basis, to really mandate frameworks for disclosure. Sustainability disclosure should be aligned with TCFD and ISSB.

    I think we also have an opportunity for governments and regulators to require the disclosure, the breakdown of green and non-green revenues so that investors have the information to allocate capital where they want to allocate capital. And then the final aspect, there'll certainly be more, but another aspect of this is the mandating of climate transition plans. And we're seeing that here in the UK, where
    we and others are working with the Transition Plans Task Force, but mandated transition plans that are public are coming.

    At LSEG, we made our public a couple months ago and had our shareholders vote on it at our AGM. And I think that is something that it's great for companies to do even before it becomes mandated. But governments should mandate that as well, because we need to have an understanding of how companies are going to drive towards this transition

    Jane Goodland:
    And does this level of disclosure need to happen in both the private and the public markets? And if so, why?

    David Schwimmer:
    Yes, is the answer. It has to be across the economy. We can't be in a position where you apply these standards or these requirements to, for example, just listed companies, just publicly traded companies. That will, in many cases, just drive a lot of the emissions into private sector hands, non-publicly traded. And that is not helpful for what we all are trying to achieve. So, it has to apply across the economy. It has to apply to publicly traded companies, privately held companies, and we need to do this on a global basis. We can't have it be the case in certain countries or regions or regulatory jurisdictions and not in others because that will also drive regulatory arbitrage.

    Jane Goodland:
    And one final question for you, as we move towards COP27, what's one thing that you think that we all need to do to make it a success?

    David Schwimmer:
    I think we have to have a clear recognition that time is not our friend here, and we really have to make progress quickly. I think carbon pricing in all of its controversy and all of its challenge in some political areas, we have to consider that more forcefully. And then I think the comments I was making earlier about the real need for mandated disclosure, mandated transition plans, absolutely critical we get there as quickly as possible. And it will take time for those rules to be put in place, but as soon as there is a clarity around the direction of travel for those rules, companies should do it voluntarily to get ahead of it.

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