As thousands land in Egypt for the 27^th United Nations Climate Change Conference in Sharm El Sheikh this week, it bears noting how much the panorama has shifted since the heady commitments launched at COP26. Among the more notable of these commitments was the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of 550 financial institutions from banks and insurers to asset owners and managers, which has committed to achieving net zero greenhouse gas (GHG) emissions by 2050 in financing activities through the adoption of science-based transition plans.

In the year since joining, members of this Alliance have been at the heart of a rapid evolution in the strategic and competitive environment for all providers of capital. Banks especially are facing intensifying societal expectations on both sides of the climate debate. This past year has seen a suite of shareholder proposals recommending that the boards of major banks end lending and underwriting for new fossil fuel development. At the same time, US Attorney Generals have launched investigations into US banks on claims of collusion with the UN to destroy American fossil fuel producing companies, or companies that depend on high emitting sources of energy. 

Consultation and engagement 

It’s within this environment that governments will come together to try and develop globally coordinated climate policy to implement the ambitions of COP26. These efforts are being informed by an unprecedented level of active consultation and engagement between governments and the finance industry.  

The US Inflation Reduction Act, which allocates $360B to carbon reduction solutions over the next 10 years, creates economic certainty for emerging climate solutions companies, which will improve their access to capital. Importantly, the IRA timeline aligns with that required by many of these technologies to scale. Canada’s Budget 2022 mandated the creation of a Net Zero Capital Allocation Working Group to help design the country’s own strategy for accelerating private capital flows toward the transition to net zero. This Working Group is led by CEOs from within Canada’s financial services industry, with the CEO of BMO’s Capital Markets serving as Co-Chair, supported by the BMO Climate Institute. The Working Group is aiming to submit final recommendations to the Ministers of Finance and ECCC by the end of next year. 

The rapid shifts and rationalization of climate policy create opportunities, but also risks for those not prepared. As financial institutions, we have an unparalleled opportunity to shape the markets within which we operate. The only thing we’re not in control of is the planet. Everything within our planetary boundaries – our society, and our economy – was created by us and can be modified by us. 

To quote @alastairhandley, the founder of a leading developer of carbon footprinting and offset generation software that BMO is in the process of acquiring: “There is no time for pessimism when it comes to climate change. Let’s transform our reality.” I wish everyone attending COP27 the best of luck in achieving this aspiration over these next two weeks.