With COP 26 less than six months away, financial organisations globally are committing to climate action.
Delayed by a year due to COVID, the excitement around COP 26 is palpable. The UK is President of this 26th UN Conference of the Parties, (or ‘COP’) and it will be hosted in Glasgow from 1 to 12 November 2021. Glasgow intends to be one of the greenest in Europe. With a Net Zero target by 2030, it is currently 4th in the world in the Global Destination Sustainability Index behind Gothenburg, Copenhagen and Zurich - it is the only UK City in the Top 20. The event couldn’t be better timed. The past few years have seen increasing awareness and understanding of climate change issues and in particular, our willingness to address the causes and find solutions to mitigate our impact on the environment.
COP 21 took place in Paris in 2015, and witnessed the pivotal Paris Agreement. Every country committed to collaborate on limiting global warming to below 2 degrees, with the ultimate target of 1.5 degrees.
With real estate accounting for around 35 per cent of global energy consumption and 38 per cent of carbon emissions, it is highly likely that the sector will become a key focus for participants in achieving their targets.
COP 26 is the first formal opportunity to review progress on the Paris Agreement and update plans. A lot has happened in five years, not least the dramatic withdrawal from the agreement of the US under President Trump, now reversed by President Biden. However, in environmental terms, not a lot has happened. The Paris commitments are under-delivering and there is now a sense of urgency to see measurable and sustainable change over the next five years.
A significant feature of delivery is the commitment to make money available to deliver on these aims. This is where the global finance sector comes in. The COP 26 goals are for every financial decision to take climate into account, for example:
- All spending decisions that countries and international financial institutions are making as they roll out stimulus packages to rebuild economies from the pandemic.
- Companies need to be transparent about the risks and opportunities that climate change, and the shift to a net zero economy pose to their business.
- Central banks and regulators need to make sure that our financial systems can withstand the impacts of climate change and support the transition to net zero.
- Banks, insurers, investors and other financial firms need to commit to ensuring their investments and lending is aligned with net zero.
Mark Carney, the UK Prime Minister’s Finance Advisor for COP26 and UN Special Envoy for Climate Action and Finance, has established the Glasgow Financial Alliance for Net Zero (GFANZ). More than 160 companies, including 43 banks from 23 countries have committed to the group. The aim is to support low-carbon infrastructure and technologies, and discourage high-carbon investments, cutting the carbon content of their assets by 2030, with the overall goal of net zero emissions by 2050.
The banks have pledged to:
- Transition the operational and attributable greenhouse gas (GHG) emissions from their lending and investment portfolios to align with pathways to net-zero by 2050 or sooner.
- Within 18 months of joining the alliance, set 2030 targets (or sooner) and a 2050 target, with intermediate targets to be set every five years from 2030 onwards.
- Focus their 2030 commitments on priority sectors with the most intensive GHG footprints within their portfolios.
- Within 36 months of joining, set a further round of sector-level targets for all or a significant majority of specified carbon-intensive sectors, including: agriculture; aluminium; cement; coal; commercial and residential real estate; iron and steel; oil and natural gas; power generation; and transportation.
- Engage with their clients' energy transitions and decarbonization.
- Publish absolute emissions and emissions intensity in line with best practice.
- Take a robust approach to the role of offsets in transition plans.
The commitment is underpinned by the United Nations Environment Programme Finance Initiative Guidelines for Climate Target Setting for Banks, launched in April 2021 and the list of participating banks and insurers can be found on under the UN Race to Zero campaign. They include major names such as Barclays, Bank of America, Commerzbank, Deutsche Bank, Handelsbanken, HSBC, Lloyds, Morgan Stanley, NatWest, Santander, Société Générale, Triodos and UBS. Most of the members also participate in the Net-Zero Banking Alliance (NZBA) or the Net-Zero Asset Owner Alliance, along with the forthcoming Net Zero Insurance Alliance.
This huge and unprecedented commitment to greener finance and sustainable capital deployment has a significant potential to influence real change on a global basis. Although there is a three-year window on targets for the real estate sector in the pledge, we have already witnessed a significant shift in emphasis to green finance over the past 12 months that is being positively responded to by property investors. The updates to be presented at COP 26 in November will provide the opportunity to demonstrate that pledges have become actions, with real and measurable progress towards the targets of the Paris Agreement.
About the author
Sara Duncan is head of UK Valuation and Advisory services for Colliers. Her expertise lies in appraisal and valuation work for lenders and investors, as well as real estate investment strategy and risk management. She manages a team of more than 100 advisers who provide market analysis and property valuations across a wide range of asset classes for lenders and asset owners across the UK and EMEA.
To get in contact, email Sara.Duncan@colliers.com