This week we rounded off our well-received four-part COP26 and Beyond webinar series with a panel session on 23 June devoted to the transition to net-zero.

Beginning, Alex Michie, Private Finance team, COP26 Unit, outlined the Glasgow Financial Alliance for Net Zero (GFANZ), explaining that it was a forum enabling the whole of the financial sector to come together in support of the transition to net-zero. This included the Net Zero Banking Alliance (NZBA), launched with commitments from 43 banking organisations from 23 countries on 21 April directly before the President Biden Earth Summit. The alliances provide an opportunity for organisations to work together in establishing ambitious and credible net-zero targets, Alex emphasised that the alliances are relevant to small and local as well as global organisations, and that the door remains open.

James Close, Head of Climate Change, NatWest Group. then spoke of the importance of getting the finance sector aligned to net-zero. NatWest is an NZBA signatory and as part of its net zero ambition has committed to halving emissions by 2030. James said the transition to net-zero by 2050 would be fundamental, spanning the way we travel, our housing and how we produce energy to name but three areas. The commitments are underpinned by the science-based targets initiative (SBTi) and NatWest has built its model around Mark Carney's three ?R's - risk, returns and reporting. Annual targets have been set for a reduction in carbon emissions embedded in the bank's portfolios and this will be a major constraint across lending.

Constance Chalchat, Head of Company Engagement, explained that BNP Paribas had viewed making a net-zero commitment as part of NZBA as a natural step. The bank began ensuring that its activity had a positive impact on the world in which we live over a decade ago. Instead of creating a ?green? or 'sustainable? finance desk, it had built solid expertise in all métiers, regions and functions, ensuring in-depth environmental, social and governance (ESG) knowledge at scale. While the immediate challenge is with supporting firms in high emitting sectors to reduce their emissions prior to 2030, the trickier part is achieving reductions in the 2030-2050 period as this involves research and development (R&D) investment in disruptive technologies with sometimes uncertain payback. The scaling-down of carbon emitting activities triggers dilemmas as to when to exit, since companies need to balance retaining revenues to invest in planet-positive activities with gradual decommissioning to avoid being left holding stranded assets.

Professor Nick Robins, Grantham Research Institute, opened by quoting Lord Debden, chair of the Committee on Climate Change, in asserting that ?we won't win and we can't win? the climate challenge unless we do this in a ?just and fair way?. Professor Robins suggested that the dialogue within the Financing the Just Transition alliance, convened by Grantham, centred upon identifying steps supporting place-based action, business action and policy action. Key levers for mobilising finance for a just transition included the newly established UK Infrastructure Bank, the British Business Bank, and the forthcoming UK sovereign bond issuance. He called for public procurement to be deployed in support of the social and environmental dimensions of net-zero in local and central government and for the formation of a Just Transition Commission based upon the Scottish model. 

Khadija Ali, Associate Partner, EY, drew attention to growing political and regulatory momentum behind the call for a more common, global framework in support of ESG reporting, not least in the form of the International Financial Reporting Standards (IFRS) Foundation being given a remit to establish a global Sustainability Standards Board. However, she said the challenge should not be underestimated given the plethora of governmental and market standards built up in recent years. Support within the recent G7 for the mandating of climate reporting represents a promising step. Standardisation in reporting brings with it the prospect of convergence, objectivity and external assurance, countering the fragmentation that currently exists.

In the Q&A session our panellists were united in calling for banking and finance to invest - rather than to divest - in ambitious net-zero goals, for bold steps within government strategies as yet to be announced and in seeing a firm role for market discipline, regulation and standards to guard against a potential ocean of pale and fake green.

A recording of the webinar can be accessed here.