Finance Day at COP28 took place on December 4, with a series of events and discussions on the role of financial services firms, and the private sector in supporting the transition into Net Zero and adapting to climate change. This covered direct and indirect investment from private-sector financial services firms and financial support via multilateral international banks and funds.
A key announcement was a commitment by the host United Arab Emirates (UAE) to invest $270bn into green finance by 2030. The commitment will see UAE banks, including its national central bank, support decarbonisation efforts and the transition to Net Zero. However, it is unclear at this stage by what vehicle this funding will be deployed, and on which sectors and geographies spending will be focused.
The commitments and proposals announced are voluntary and would not introduce any new mandatory requirements for financial services firms. While there are several commitments to accelerate the integration of sustainability reporting standards into domestic regulation and globally align policies relating to public sector Net Zero commitments, these efforts are in their earliest stages and are unlikely to change the trajectory of policymaking in the near term.
Sustainable finance regulation
Sustainable finance regulation was a focus for the day, with a series of developments on climate-related transition plans and disclosures. Although no new mandatory sustainable finance requirements were introduced these announcements will add pressure on financial services firms, domestic governments and regulators to endorse and adopt emerging international sustainable finance regulatory standards, and strengthen domestic regulation.
A commitment by 70 global institutional investors to endorse and adopt ISSB IFRS S1 and IFRS S2 climate and sustainability-related reporting. Key jurisdictions such as the USA and UK have not yet formally endorsed IFRS S1 and S2 or indicated how the standards will be adopted into mandatory domestic disclosure requirements.
At the same time, the Glasgow Financial Alliances for Net Zero (GFANZ) is expected to release recommendations on how to embed nature into its Net Zero emission transition plan framework. This initiative will aim to embed nature as a separate category alongside climate and sustainability in GFANZ’s framework for transition plans. This change would look to ensure that private sector transition plans appropriately identify and manage nature-related risks, and direct capital to these risks and opportunities as necessary. These recommendations are likely to be reflected in the future UK requirements for climate and sustainability-related disclosures given the close relationship between GFANZ and the UK’s Financial Conduct Authority and Transition Plan Task Force.
A series of announcements were made aiming to increase how developing countries can access and benefit from multilateral and international finance support. Finance Day also renewed calls by activists and NGOs for greater support and investment from the financial services sector. These included a fantastic report by the Independent High-Level Expert Group on Climate Finance, co-authored by Grantham Research Institute chair Nicholas Stern, which emphasised that developing countries will need $2.4trn per annum to cap emissions and adapt to climate change.
Finally, the UK announced on December 4th that it will launch the Climate Investment Funds (CIF) Capital Market Mechanism in partnership with the World Bank. This mechanism will see bonds generate up to $750m per year in new climate finance and build upon the UK’s COP26 commitments.
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