Tackling climate change is the most important issue affecting the economy and inter-generational equality. I’ve spent the last 15 years of my career, in both the public and private sectors, championing climate-smart finance to help with the transition to net zero. COP26 is a pivotal moment and I believe the UK really can make a difference. We have ambitious climate plans and we’ll work collaboratively with other countries and non-state actors (UN-speak for businesses, cities, investors and NGOs) to make it a success by showing how changing finance flows can support climate action. The accounting profession has an important role to play in providing the tools to direct capital towards the transition.
After the financial crisis, Lord Adair Turner made the case for finance to be purpose-led and when NatWest Group announced their strategy was to be a purpose-led bank I was intrigued. When I found out that climate change was at the heart of the strategy, I was delighted when they offered me the job of Head of Climate Change. I’ve worked at The World Bank so I know the role that concessional and blended finance can play in accelerating climate action.
I believe finance really can make a difference. Investors, fund managers and banks have high expectations of our climate ambitions, and rightly so. The UK takes these expectations extremely seriously. As a country, we’ve demonstrated leadership by setting carbon budgets and legislating for climate action. The UK has created the Race to Zero and UK banks are leading the way in joining the Net Zero Banking Alliance, which is part of the Glasgow Financial Alliance for Net Zero (GFANZ). Showing how changing finance flows can support climate action and demonstrating that the UK is leading the way through inspiration and example will drive the success of COP26.
Our leadership starts from the top. The Prime Minister has set out the UK’s commitment and action and, as COP president, we have a unique opportunity to show the world what we can do to bring about significant change, at speed, to build a more climate-resilient economy. We can also use these intentions to build back better from the pandemic.
Here are three areas where the UK can show leadership:
- Accelerating the speed of transition: Policy that we can accelerate transition and we need long-term signals to mobilise finance and the supply chain to retrofit and improve the energy efficiency of the UK’s housing stock. We also have the Ten Point Plan for a Green Industrial Revolution.
- Supporting businesses: We know from our research that 88% of businesses want to reduce the emissions in their supply chain but many don’t know how. Businesses need to understand and tackle their carbon footprint so that they can drive forward net zero innovation.
- Helping to end the most harmful activity: The UK leads in reducing its reliance on coal and, as a founding member of the Powering Past Coal Alliance, the UK can mobilise action to reduce the reliance on coal with developed countries helping developed countries to make the transition to deliver sustainable energy for all.
High levels of ambition on their own are not enough. Tackling climate change is very much a team sport and collaboration is the key to success: sectors becoming aware of what they have to do; businesses knowing they have support; and governments helping enable change.
The accountancy profession can be at the heart of these changes through:
- A clearer view of true and fair: Balance sheets will have to align with the expectations of net zero. The economic and financial transition is underway and auditors need to reflect that in their opinions industries involved in the transition especially oil and gas companies.
- Consistent improvement in carbon accounting and data: There have been major steps forward in carbon accounting and the accounting industry needs to integrate carbon into International Financial Reporting Standards.
- Non-financial reporting to support ESG: The World Economic Forum report on common metrics and consistent reporting of sustainable value creation was a good start toward creating consistency in non-financial reporting and the accounting profession can build on the principles proposed.
These are not exhaustive, of course. Whilst the eyes of the world are on Glasgow for the COP in November, many will be watching the leadership that the accounting industry can take so that the finance can flow to a net zero transformation.
The more we collaborate, the more likely it is we will succeed in hitting our targets. And the more we work together, the more we can scale up action and accelerate the climate action – one of the biggest challenges of our time.
James Close is the Head of Climate Change at NatWest Group who are principal banking sponsors to COP26 in Glasgow. He is a member of the Energy and Natural Resources Community Advisory Group for the ICAEW. He was formerly the Director for Climate Change at the World Bank where he was involved in the historic Paris Agreement and he is a veteran of many COPs.*The views expressed are the author’s and not ICAEW’s.