Time to make net zero mandatory for financial institutions

Writing in Responsible Investor, Ben Caldecott explains why financial institutions need to decarbonise the economy instead of focusing simply on the climate-related risks that could strand assets.  While climate risk management (CRM) can lead to better climate outcomes, it has different aims and often different results to alignment with climate outcomes (ACO). In fact, CRM can in some cases make little or no contribution to ACO.

​It has been five years since the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) was announced. It has in this time created a framework to help companies consistently measure, manage and report their climate-related risk exposures. Although TCFD does have undoubtedly have an important role to play in mitigating climate change, further measures need to taken - making net zero targets and transition plans mandatory for all financial institutions is the single most significant step to take.

The UK is ideally placed to influence the global financial system: as hosts of COP 26, new commitments on climate from financial institutions need to be significant; and as home of the world's largest financial centre, others will follow the City of London's lead. 

This is a sensitive intervention point, where a modest change can create disproportionate benefits for and non-linear growth in climate action. And exactly the sort of measure that the UK should be doing as a world-leader on climate change in the build-up to COP26.