COP26: UK firms forced to show how they will hit net zero

By Robert Plummer & Beth Timmins BBC News

By 2023, they will have to set out detailed public plans for how they will move to a low-carbon future – in line with the UK’s 2050 net-zero target.

An expert panel will set the standards the plans need to meet to ensure they are not just spin. 

Any commitments will not be mandatory. Green groups say this is not enough. 

Net zero is when a business or a country achieves an overall balance between the amount of carbon it is emitting and the carbon that it’s removing from the atmosphere.

• Check out more of the BBC’s business stories from the COP26 summit 

Firms and their shareholders will be left to decide how their businesses adapt to this transition, including how they intend to decarbonise.

And although the plans will need to be published, the government said “the aim is to increase transparency and accountability” and the UK was not “making firm-level net-zero commitments mandatory”.

The market will decide whether firms’ plans are credible, the Treasury said.

Speaking at the COP26 climate summit, Chancellor Rishi Sunak claimed the UK was leading the world in becoming the “first-ever net zero aligned global financial centre”.

He said the changes would mean: “Better and more consistent climate data; sovereign green bonds; mandatory sustainability disclosures; proper climate risk surveillance; and proper global reporting standards.”

In total, 450 firms controlling 40% of global financial assets – equivalent to $130tn (£95tn) – have agreed to commit to limit global warming to 1.5C above pre-industrial levels.

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‘Not fast enough’

However, campaign group Global Witness said that without regulation the pledges were “doomed to fail”.

“Banks and financiers are the lifeblood of the fossil fuel companies and destructive agribusinesses fuelling the climate crisis – so it’s right that focus should be on them at COP26. 

“However, today’s announcement by banks risks amounting to more greenwashing if it’s not legally binding,” said Veronica Oakeshott, head of forests policy and advocacy at Global Witness.

David Barmes, senior economist at the campaign group Positive Money, said the intention was positive, but that financial firms were still “pouring billions into environmentally harmful projects.”

Mark Campanale, founder and executive chair of Carbon Tracker Initiative, praised the ambition of the plans, but said details of how it would work were still unclear.

“None of the financial assets announced are currently aligned with net-zero and no group of companies can say they are meeting the Paris target by continuing to invest in fossil fuels, so that needs to change considerably before London can be lauded as the world’s first net-zero financial centre and a model for the world,” he said.

Shaun Spiers, executive director of environmental think tank Green Alliance, said that more UK public sector funding was needed. 

“Private sector investment is vital, but it will be much easier to achieve on the back of serious investment by the chancellor,” he said.

However, a coalition of finance groups led by former Bank of England governor Mark Carney said there was enough finance committed to keep global warming to 1.5C.

The Glasgow Financial Alliance for Net Zero (GFANZ) said more than $130trn (£95trn) of private capital “is now committed to transforming the economy for net zero”.

In practice, this means that bank loans which would go to an oil field, or a coal mine, are diverted to renewable energy or to a mortgage product that subsidises highly efficient homes.

Bank bosses will also be expected to have tough conversations with their customers who want to build coal power stations, pulling funding in advanced nations now, and developing countries beyond the next decade. 

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Transition plans

Under the proposed Treasury rules, financial institutions and companies with shares listed on the London Stock Exchange must come up with net-zero transition plans, which will be published from 2023.

The strategies will need to include targets to reduce greenhouse gas emissions, and steps which firms intend to take to get there.

A taskforce made up of industry leaders, academics, regulators and civil society groups will set a science-based “gold standard” for the plans in order to guard against so-called “greenwashing” – where environmental initiatives are more about marketing than substance.

However, the government said there was “not yet a commonly agreed standard for what a good quality transition plan looks like“.

Meanwhile, Mr Sunak also pledged that a target for developed countries to send $100bn (£720m) a year to those that are less developed – to help support their transition to net zero – will be achieved by 2023.

Alison Rose, chief executive of Natwest, told the BBC Radio 4 Today programme that the bank had started measuring the emissions on its balance sheet to help it track progress, saying “transparency was critical”.

She said the bank was working with the oil and gas industry “to develop credible transition plans so we can track progress and work with our customers”.

But Ms Rose said its main focus was helping small firms where there were “real business opportunities” in “adopting sustainable supply chain [and] sustainable business practices”.

Kay Swinburne, vice-chairman of financial services at KPMG UK, said the announcement on UK firms would provide the financial services industry with a “valuable set of unified metrics to measure progress towards decarbonisation”. 

“It is brave to put a gold standard in place for all companies raising funding,” she added. 

And Dr Ben Caldecott, director of the UK Centre for Greening Finance and Investment, said the plans would “spur demand for green finance and accelerate decarbonisation, not just in the UK but wherever UK firms do business”.