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Avoiding voluntary climate action risks credit squeeze: panel

Highlights

Institutional investors urge climate transparency

Voluntary carbon markets 'essential' for global decarbonization

UK appoints Net Zero Business Champion

London — Companies that avoid transparency on climate targets and action plans are risking a future of constrained capital and less favorable credit ratings, finance experts warned in a panel discussion Nov. 17.

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The warnings come as a growing number of major corporations take on voluntary targets to reach net-zero greenhouse gas emissions by 2050, leaving laggards at risk of reduced capital from institutional investors.

"Companies like ourselves are asking companies to produce their TCFD report and increasingly asking them to sign up to science-based targets," said Zelda Bentham, group head of sustainability at insurance group Aviva, citing the FSB's Taskforce on Climate-related Financial Disclosures.

"If they don't sign up -- depending on how carbon intensive they are and how large they are -- as an institutional investor, we may vote against them," Bentham said in a webinar hosted by voluntary carbon market standards group, Gold Standard.

Companies are forging ahead with commitments to reduce greenhouse gas emissions in the absence of direct climate regulation in some jurisdictions, she said.

"So we would like them to do it [take voluntary action]. It may be that regulation comes, and generally companies don't like regulation. It may come to that, but we would like companies to take proactive action," Bentham said.

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Sonja Gibbs, managing director and head of sustainable finance at the Institute of International Finance, said Environmental, Social and Governance issues will increasingly play a decisive role in investment and lending decisions.

"ESG factors are getting factored into company ratings. How credible these [climate] targets are is going to be part of their public perception," Gibbs said in the webinar.

"In short, if you're not making good progress on your targets and plans, that's going to affect your ratings and your ability to borrow," she said.

Taskforce on voluntary carbon markets

The IIF in September launched the Taskforce for Scaling Voluntary Carbon Markets in conjunction with Mark Carney, UN special envoy for climate action and finance adviser to UK Prime Minister Boris Johnson.

The taskforce's goal is to bolster the market for voluntary carbon offsets and help improve standards in a bid to boost confidence in the market, which will need to grow by a factor of at least 15 in order for economies to reach net-zero emissions by mid-century, it said.

The taskforce will do this by taking stock of existing voluntary carbon markets, identifying key challenges and barriers, and building consensus on how best to scale up the markets.

The group published initial recommendations and launched a public consultation Nov. 10 to seek input from stakeholders.

"A large, transparent, verifiable and robust voluntary carbon market is essential in the quest for global decarbonization," said taskforce chair and group chief executive of banking group Standard Chartered, Bill Winters, in a statement accompanying the report Nov. 10.

"Establishing a fair price for carbon offsets in a transparent and liquid market will allow those who seek to reduce their carbon footprint to more easily fund those who invest in actual carbon reduction projects," he said.

UK appoints net-zero tsar

Separately, preparations are under way with a year to go until the UK hosts the COP26 United Nations climate talks in Glasgow in November 2021.

The UK is asking countries to up their ambition on emissions reduction targets in an international effort to meet the Paris Agreement's target to limit global temperature increases to no more than 1.5 degrees Celsius from pre-industrial levels by 2100.

Prime Minister Johnson has appointed member of parliament Andrew Griffith as the UK's Net Zero Business Champion to support the UK's businesses to make credible plans to reach net-zero by 2050 or earlier, the UK's Department for Business, Energy and Industrial Strategy said in a statement Nov. 17.

"Our global leadership on climate change can open up new large and attractive sectors in the world economy in which British businesses will be well placed to succeed," Griffith said in the statement.

Griffith previously served as the Prime Minister's chief business advisor from July to December 2019.