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1 The ministers backed global mandatory climate risk disclosure
According to a joint communiqué, greening the financial system will “help mobilise the trillions of dollars of private sector finance needed” to tackle climate change and hit net zero, says the paper. The ministers therefore supported moving towards mandatory climate-related financial reporting, based on the framework delivered by the Task Force on Climate-related Financial Disclosures (TCFD).
“Investors need high quality, comparable and reliable information on climate risks. We therefore agree on the need for a baseline global reporting standard for sustainability, which jurisdictions can further supplement,” says the communiqué. Further discussions are intended to lead to the establishment of an International Sustainability Standards Board ahead of COP26.
The agreement is seen as a coup for the UK, which is the first G20 country to compel TCFD-aligned reporting across the economy.
“Finance has a critical role to play in driving an inclusive recovery as well as helping businesses across sectors respond to the climate crisis and social challenges. Increasing international alignment across sustainable finance regulatory and policy frameworks should be at the forefront of any and all plans. As hosts of G7 and COP26, it is great to see the UK must pick up the mantle on this global agenda which will help build sustainability for all,” said Confederation of British Industry president Lord Karan Bilimoria.
2 Reaching net zero means “significant structural change”
The ministers agreed that a “multi-year effort” is required, “to deliver the significant structural change needed to meet our net zero commitments and environment objectives in a way that is positive for jobs, growth, competitiveness and fairness”.
“We commit to properly embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon,” they added.
The communiqué was also agreed by central bank governors and the heads of the International Monetary Fund, World Bank Group, Organisation for Economic Cooperation and Development, Eurogroup, and the Financial Stability Board.
Their meeting came ahead of the three-day Leaders Summit at Carbis Bay, Cornwall, which begins on Friday.
3 The meeting endorsed the Taskforce on Nature-related Financial Disclosures
Building on the TCFD, a new Taskforce on Nature-related Financial Disclosures was launched on Friday, the ministers saying that they looked forward to its outcome, due in 2023.
The market-led initiative, “aims to provide financial institutions and corporates with a complete picture of their environmental risks and opportunities” it said in a statement.
It is chaired by David Craig, in charge of a division of the London Stock Exchange Group and Elizabeth Maruma Mrema, executive secretary of the UN Convention on Biological Diversity. It intends to deliver a framework for organisations to report their “evolving nature-related risks” and to help shift global financial flows towards “nature-positive outcomes”.
Financial institutions, major corporations, governments, regulators, multilateral bodies, and NGOs have been discussing the plan since last year.
“Without urgent action, ongoing loss to biodiversity poses unprecedented risks for business, both now and in the future. Better nature-related data that enables informed decision-making by financial institutions and companies is how we will solve the global ecological crisis. Financial disclosures are essential to a market-based solution to nature loss. A properly functioning, informed market will price in risks appropriately and be empowered to channel investments to more sustainable opportunities,” said Craig.
Environment minister Zac Goldsmith said the launch of the 30-member taskforce, drawn from financial institutions, businesses and data/service providers from developed and emerging markets, “marks an important milestone” for the government’s Green Finance Strategy.
4 The TCFD was just the first step
The G7 also backed the International Financial Reporting Standards Foundation’s work to further develop the TCFD’s baseline framework. This is intended to guard against individual countries setting slightly different rules on corporate reporting, which would increase red tape and hinder the use of the data provided. The standards will be “more prescriptive and granular”, said the Treasury.
5 The communiqué says little about the Dasgupta Review
Saturday’s statement was rather terse about the Dasgupta Review, a major report commissioned by the Treasury that called for a new Marshall Plan to confront humanity’s growing demands on the biosphere.
“We welcome the Dasgupta Review on the Economics of Biodiversity and the related OECD Policy Guide on Biodiversity,” says the communiqué.
Shaun Spiers, executive director of the Green Alliance, said: “It is good to see finance ministers starting to integrate climate and biodiversity into their economic thinking. Requiring companies and banks to report their impact on climate change marks important progress towards making economies more sustainable. Recognising the importance of the Dasgupta review is the first step to considering the true value of nature to the public purse.”
6 Registries of beneficial ownership will fight environmental crime
The meeting agreed to implement and strengthen national registries of company beneficial ownership, which the Treasury described as, “a major step forward in global efforts” to against financial crime. As such, it will also boost the fight against environmental law-breaking, such as trafficking of wildlife and illegally-logged timber, which have, “a serious impact on the planet’s biodiversity, generate billions of dollars in illicit finance and enable corruption and transnational organised crime,” according to the communiqué.
The ministers called on all countries to fully implement standards agreed by the global money-laundering watchdog the Financial Action Task Force. They are intended to overcome labyrinthine ownership structures used to launder ill-gotten gains and bring offenders to justice.
The UK has had a register of beneficial ownership since 2016, maintained as part of Companies House records. It was used to identify Gilbert Khoo, a seafood trader who smuggled protected glass eels worth an estimated £53m, earning him a suspended two-year jail sentence last year. A confiscation order is being pursued against him, the Mirror newspaper reported recently.
The UK also intends to create a new public register of overseas entities who own UK real estate.
7 Central banks will consider climate risks
As the Bank of England is doing already, the central banks of the G7 will assess the financial stability risks posed by climate change, drawing on the work of the Network for Greening the Financial System and sharing their experience. Discussions on making their own disclosures under the TCFD network will follow this year.
8 The meeting reaffirmed a $100bn climate finance pledge
“International climate finance is critical for supporting developing countries’ climate change adaptation and mitigation efforts. We reaffirm the collective developed country goal to mobilise US$100 billion annually for developing countries from public and private sources, in the context of meaningful mitigation actions and transparency on implementation. We commit to increase and improve our climate finance contributions through to 2025, including increasing adaptation finance and finance for nature-based solutions,” the ministers agreed.
Further commitments are expected at the G7 Leaders’ Summit or ahead of COP26.
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