G7 Commits to Multi-Year Effort to Support Net-Zero Global Economy and to Move to Mandatory Climate Risk Reporting

On June 5, 2021, in their daily communiqué from the G7 UK 2021 meetings,¹ the G7 Finance Ministers and Central Bank Governors made a number of statements regarding climate change.

Stating their support for a global Covid-19 recovery:

“We will continue to work together to ensure a strong, sustainable, balanced and inclusive global recovery that builds back better and greener from the Covid-19 pandemic, recognising the disproportionate impact of the pandemic on certain groups including women, youth and vulnerable populations. We commit to sustain policy support as long as necessary and invest to promote growth, create high-quality jobs and address climate change and inequalities.”

Noting that international climate finance will be critical to climate change and adaptation:

“We reaffirm the collective developed country goal to mobilise US$100 billion annually for developing countries from public and private sources, in the context of meaningful mitigation actions and transparency on implementation. We commit to increase and improve our climate finance contributions through to 2025, including increasing adaptation finance and finance for nature-based solutions. We welcome the commitments already made by some G7 countries to increase climate finance. We look forward to further commitments at the G7 Leaders’ Summit or ahead of COP26. We call on all the Multilateral Development Banks (MDBs) to set ambitious dates for Paris Alignment ahead of COP26, and welcome their work supporting client countries. We urge the MDBs to mobilise increased climate finance including from the private sector, and to increase their support for a clean energy transition, adaptation and resilience, and nature. We welcome the IMF’s increasingly critical role in supporting members’ management of climate risks and transitions to net zero, including through surveillance. We commit to including climate coverage within our countries’ IMF bilateral surveillance reports, and call on others to do the same.”

Stating, regarding their support for a net-zero global economy:

“We commit to a multi-year effort to deliver the significant structural change needed to meet our net zero commitments and environment objectives in a way that is positive for jobs, growth, competitiveness and fairness. We commit to properly embed climate change and biodiversity loss considerations into economic and financial decision-making, including addressing the macroeconomic impacts and the optimal use of the range of policy levers to price carbon.”

Noting the risks of climate change to the solvency of financial institutions and to financial stability:

“We recognise that climate change poses increasing physical and transition risks to regulated financial institutions and to financial stability, and that these risks have distinct characteristics we need to take into account. G7 authorities consider it important for financial firms to manage the financial risks of climate change using the same risk management standards as applied to other financial risks. G7 Central Banks will assess the financial stability risks posed by climate change, and will consider drawing on, as appropriate, scenarios published by the Network for Greening the Financial System. Central Banks will share learnings on taking climate-related risks into account in their own operations and balance sheets as appropriate, and look forward to discussing later in the year how they might make their own disclosures based on the recommendations of the TCFD [Task Force on Climate-related Financial Disclosures]. We fully support the FSB in developing an ambitious roadmap that identifies and addresses climate-related financial risks, including through steps to promote comparable disclosures, address data gaps, enhance vulnerabilities assessments and promote consistent regulatory and supervisory practices. We also support the Sustainable Finance Working Group in developing their G20 sustainable finance roadmap, with an initial climate focus.”

Stating, with respect to such embedded climate change:

“We emphasise the need to green the global financial system so that financial decisions take climate considerations into account. This will help mobilise the trillions of dollars of private sector finance needed, and reinforce government policy to meet our net zero commitments. We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants and that are based on the [TCFD] framework, in line with domestic regulatory frameworks. Investors need high quality, comparable and reliable information on climate risks. We therefore agree on the need for a baseline global reporting standard for sustainability, which jurisdictions can further supplement. We welcome the International Financial Reporting Standards Foundation’s programme of work to develop this baseline standard under robust governance and public oversight, built from the TCFD framework and the work of sustainability standard-setters, involving them and a wider range of stakeholders closely to foster global best practice and accelerate convergence. We encourage further consultation on a final proposal leading to the establishment of an International Sustainability Standards Board ahead of COP26.”

Touching on more general impact reporting:

“In addition, we recognise the growing demand for more information on the impact that firms have on the climate and the environment. We recognise that many jurisdictions and organisations are already developing impact reporting initiatives, including but not limited to reporting on net zero alignment and broader sustainability metrics. We will work closely together and with our international partners to determine the best approach to ensure global consistency.”

Stating Their Support for the Taskforce on Nature-related Financial Disclosures:

“We look forward to the establishment of the Taskforce on Nature-related Financial Disclosures and its recommendations.”