• Richard Bernau, Expert |

Expectations were high for the 26th UN Climate Change Conference of the Parties (COP26) held in Glasgow last year. It felt like some important steps forward emerged — but was the global summit ultimately a success?

COP26 was notable for reaffirming the Paris Agreement goals of limiting global average temperature gains to well below 2°C while attempting to keep it to 1.5°C, and for committing to phasing down coal-fired power generation. The first commitment is softer than the desired commitment to align to 1.5°C and the coal commitment was watered down. 

Steps forward emerged on several key climate issues: more financing for adaptation; a push for increased national commitments; transparency and reporting advances; and acknowledgement of loss and damage occurring now and in the future.

But if you were looking for a quantum leap that would effectively limit global warming to 1.5°C, you were out of luck. And since COP26, actual emissions cuts to match targets remain a world away from the ambitious picture delivered at the conference. As a result, the pressure is on for countries like New Zealand, where I live, to deliver something better during this year’s conference in Egypt.

Some observers noted after COP26 that the fight to end climate change is a marathon rather than a sprint. But a more apt analogy is that it’s a relay race — the fundamental point being that the baton isn’t dropped between summits and that progress is achieved at each gathering.

Progress on the financial front amid challenges

While the big picture remains challenging, how did COP26 impact banks and financial institutions? At Glasgow, banks and investors certainly took steps forward. Trillions were pledged to green funding in a coordinated commitment to incorporate carbon emissions into investment and lending decisions. More than 450 financial institutions from 45 countries, managing assets exceeding US$130 trillion, made the commitment1.

Mark Carney, former Bank of England and Bank of Canada Governor, described these changes as “essential” and as moving climate change “from the fringes to the forefront.” Judging by progress in the last year, however, his comment that “the architecture of the global financial system has been transformed to deliver net zero” may be premature. But this direction of travel is certainly evident among banks and financial services organizations2.

The Glasgow Financial Alliance for Net Zero (GFANZ) highlights the critical role that finance provides if the real economy is to reach net zero. Financing and capital markets are essential in enabling companies to invest in transforming their business models during the journey to net zero. Finance serves as both the lubricant in the machinery and the petrol powering the engine of change.

Even within GFANZ, though, all is not aligned, unanimous or harmonious. It was reported in October that three US banks were considering leaving GFANZ. These banks raised concerns about breaching US antitrust laws if GFANZ members were required to follow the UN’s Race to Zero guidance on investment decisions3. There may well be legitimate antitrust concerns, but there is more than a hint that while banks happily took the applause over net-zero announcements, they are now trying to back off of their responsibility.

Managing climate risk comes with no guarantees on net zero

What’s certainly true is that as many banks unpack the challenge of delivering net zero commitments, they are discovering enormous challenges that include:

  • Changing a deeply ingrained culture.
  • Building the modern skills required to analyze new climate-related risks.
  • Collecting ESG data that often doesn’t exist or that has no ‘golden source’. 
  • Understanding sector-transition pathways.
  • Incorporating new risks and opportunities in existing credit and investment processes.
  • Reporting on progress. 

On top of these largely organizational challenges, there is a growing realization that managing climate risk is no guarantee of achieving net zero. The risk management part is fundamentally an input-focused process — while net zero is fundamentally output focused. It would be incorrect to say that all lenders agree on what ‘good ESG’ looks like or how they are going to get there. But there is now significant alignment being seen around the ideas that this is a multi-year journey requiring front-to-back transformation of operating models. 

Let me put it like this — if you accept that you cannot simply ‘cleanse’ your lending portfolio without creating stranded assets, then you should accept that lenders are part of a process encompassing the transition of their entire portfolio to net zero. Success is therefore largely dependent on the behavior of borrowers over whom lenders have limited influence. The challenge is obvious.

As we head into COP27, it’s being reported that CEOs from Blackrock, Citi and Standard Chartered — three global financial titans — won’t be attending, although they did attend COP264. Meanwhile, UK Prime Minister Rishi Sunak will now be attending the summit, following previous news that he would not participate.

“There is no long-term prosperity without action on climate change,” the UK leader stated November 2 in announcing the sudden U-turn on his participation amid earlier criticism of his planned absence. “There is no energy security without investing in renewables5.”

Action is now more important than new pledges

That’s good news, but the evolving participation picture provides evidence to support a widespread consensus that — amid global recession fears, inflation, food and energy shortages, and the war in Ukraine — climate change has been downgraded on the global agenda.

Does this matter? Finance is still central to this year’s COP but, as I have suggested, action is now more important than new pledges. If there are more ‘doers’ and fewer figureheads attending, perhaps that’s a good thing.

Outgoing COP President Alok Sharma has stressed to leaders the importance of “delivering on the commitments that you made6.” And while finance is vital, banks, investors and the private sector are not part of the summit’s formal negotiating process. If COP27 produces evidence of real action and implementation, that would be a huge step forward.

Among our banking clients, there are many people working incredibly hard on the plans that will help ensure that net-zero commitments are met. There should be dedicated contributors from all sectors — particularly the high emitters — being elevated to central positions.  Perhaps even capturing a tiny part of the limelight through their efforts to overcome politics and drive true progress that is sustained in the months and years ahead? If COP27 delivers on the promise of moving from pledges to implementation, then my optimism prevails.

While I am not at COP27 — the carbon footprint of travelling from New Zealand would be horrendous — there are KPMG professionals on the ground. At the end of COP27, I will be giving you my take on the implications for our banking clients. And I might even get off the fence to make a case for whether COP26 or COP27 matters more. Stay tuned!




Throughout this page, “we”, “KPMG”, “us” and “our” refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity.


1Alderman, L., & Nelson, E. (2021, November 3). Global finance industry says it has $130 trillion to invest in efforts to tackle climate change. Nytimes.Com. https://www.nytimes.com/2021/11/03/world/europe/cop26-climate-change-finance-industry.html

2Segal, M. (2021, November 3). Carney: Net Zero Aligned Capital Surges to $130 Trillion. ESG Today. https://www.esgtoday.com/carney-net-zero-aligned-capital-surges-to-130-trillion/

3Walker, O., Morris, S., & Bryan, K. (2022, September 21). US banks threaten to leave Mark Carney’s green alliance over legal risks. Financial Times. https://www.ft.com/content/0affebaa-c62a-49d1-9b44-b9d27f0b5600

4BlackRock, Citi CEOs Won’t Be Returning to Key Climate Talks - BNN Bloomberg. (2022, October 12). BNN. https://www.bnnbloomberg.ca/blackrock-citi-ceos-won-t-be-returning-to-key-climate-talks-1.1831297

5Limb, L. (2022, November 7). Which European leaders are attending COP27? The influential politicians heading to Egypt. Euronews. https://www.euronews.com/green/2022/11/01/which-european-leaders-are-attending-cop27-the-influential-politicians-heading-to-egypt

6Thomas-Peter, H., & Thomas-Peter, H. (2022, November 6). COP27: Alok Sharma says countries must deliver on their climate change promises. Sky News. https://news.sky.com/story/cop27-alok-sharma-says-countries-must-deliver-on-their-climate-change-promises-12739880

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