Financial institutions and regulators have refocused attention on climate finance and ramped up work on disclosures, with a flurry of announcements ahead of the UN Cop 27 climate conference next month in Egypt.
Two banks have made further moves to curb some direct financing of fossil fuel activity, although there is likely to be further scrutiny on this topic at Cop 27. UN special envoy for climate action and co-chair of the Glasgow Financial Alliance for Net Zero (GFANZ) Mark Carney this week stressed the role of finance to hit climate goals. In reference to GFANZ members — which now number around 550 — he told UK parliament's environmental audit committee that "the balance sheets committed to be managed towards net zero is more than sufficient to finance the transition". But finance is a catalyst and needs "underlying components… public policy, regulatory clarity," he added.
UK bank Lloyds Banking Group earlier this month confirmed that it would no longer support direct financing — either through project finance or reserve-based lending — of new greenfield oil and gas developments, defined as those which did not receive approval before the end of 2021.
"Our exposure to fossil fuels is minimal, but the sector remains a priority focus for us," Lloyds told Argus. Coal mining made up less than 0.1pc of the group's loans and advances, while oil and gas clients accounted for 0.2pc of its loans and advances, both at the end of 2021, it said.
UK-headquartered bank HSBC plans to phase out coal-fired power and thermal coal mining from its listed holdings, with a deadline of 2030 for the EU and OECD countries and 2040 for the rest of the world, it said in late September. There will also be no new exchange traded funds pr index funds with more than 2.5pc exposure to thermal coal issuers, unless the fund's strategy has a clear divestment pathway or is aligned with the Paris climate agreement, HSBC said.
"We have already stopped direct investments in new or existing thermal coal projects… We believe in working in partnership with our clients to transition away from thermal coal, while supporting a just transition. But we are clear that we will need to walk away from companies who don't or won't take active credible steps to reduce emissions," HSBC said.
Fossil fuel divestment can be controversial, as it does not immediately result in real-terms emissions reduction.
Disclosures improve as mandatory reporting looms
Non-profit CDP confirmed earlier this month that it has seen a record year to date in terms of organisations making climate disclosures. Companies making environmental disclosures through CDP in 2022 rose by 38pc on the year to almost 20,000, it said. This equates to a 233pc increase the Paris agreement was signed in 2015, it added.
UK regulator the Financial Conduct Authority (FCA) this week set out a raft of proposed rules for sustainability-linked investment products, including restrictions on the use of certain ‘green' terms, to tackle so-called greenwashing. The proposals are open for consultation until January and would eventually affect any businesses regulated by the FCA — roughly 50,000.
Alhough climate reporting remains largely voluntary, Carney noted that "a voluntary system… is better than no system."
"Every institution in GFANZ has to justify what they are doing," he added.
And mandatory reporting will come into effect across several jurisdictions in the next few years, with a proposal from the US earlier this year. Mandatory reporting came into force for large UK-registered companies and financial institutions for financial years starting after 6 April 2022.
