The road to Glasgow is paved with finance, climate disclosures

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The next United Nations conference on the Framework Convention on Climate Change (FCCC) in the United Kingdom in November 2020 is likely to be a conference led by the finance function.

Technically called the 26th session of the Conference of the Parties (COP26) to the UNFCCC, the conference is expected to take place from 9-19 November 2020, in Glasgow, UK. The Presidency of the COP26 vests with the UK this time, in association with Italy.

"The objective for the private finance work for COP26 is simple: ensure that every financial decision takes climate change into account," said Mark Carney, Governor Bank of England in London last week while launching the COP26 Private Finance Agenda.

Private finance will have a critical role to play in a successful transition to a net-zero carbon economy, Carney said in his speech, while adding that the world's major systemic banks, its largest insurers, biggest pension funds and top asset managers are supporting the Task Force on Climate-related Financial Disclosures (TCFD).

Achieving net-zero carbon economy is a tough ask. It will require the whole economy to transition with every company, bank, insurer and investor to adjust their business models. While that may represent a short term challenge, it also offers a long-term opportunity.

"For COP26, we will work to develop pathways in consultation with international standard-setters such as the FSB, IFRS and IOSCO, and national authorities to determine the best approaches for making climate disclosure mandatory," said Carney while underlining that investors controlling $40 trillion in assets are looking for these changes.

Reporting based on the Task Force on Climate-related Financial Disclosures (TCFD)-based reporting will become mandatory for signatories of Principles for Responsible Investment (PRI) in 2020.

The TCFD is an industry-led group formed in 2015, by the Financial Stability Board (FSB) of G20 with preparers and consumers of financial reports as members. On the other hand, PRI was developed after the then Secretary-General of UN, Kofi Annan invited the world's largest institutional investors to join a process to develop such principles.

It was launched in April 2006. Since then the number of signatories has grown from 100 to over 2,300. Together, the two groups represent the combined might and heft of the top 20 economies of the world and the finance movers of the world. And they are planning to change the terms of doing business by incorporating climate change thinking in the global financial agenda.