MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY DISCLAIMER This report is the product of the Group of Thirty’s Steering Committee and Working Group on Climate Change and Finance and reflects broad agreement among its participants. This does not imply agreement with every specific observation or nuance. Members participated in their personal capacity, and their participation does not imply the support or agreement of their respective public or private institutions. The report does not represent the views of the membership of the Group of Thirty as a whole. ISBN 1-56708-180-0 Copies of this paper are available for US$25 from: The Group of Thirty 1701 K Street, N.W., Suite 950 Washington, D.C. 20006 Tel.: (202) 331-2472 E-mail: [email protected], www.group30.org MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY Published by Group of Thirty Washington, D.C. October 2020 WORKING GROUP ON CLIMATE CHANGE AND FINANCE STEERING COMMITTEE Mark Carney, Co-Chair Gail Kelly Special Envoy on Climate Action and Finance, Senior Global Advisor, UBS United Nations Former CEO & Managing Director, Former Governor, Bank of England Westpac Banking Corporation Janet Yellen, Co-Chair Hélène Rey Distinguished Fellow in Residence, Hutchins Lord Bagri Professor of Economics, Center on Fiscal and Monetary Policy, London Business School Brookings Institution Former Professor of Economics and International Former Chair, Board of Governors of the Affairs, Princeton University Federal Reserve System Philipp Hildebrand Vice Chairman, BlackRock Former Chairman of the Governor Board, Swiss National Bank PROJECT DIRECTOR Caspar Siegert J.P. Morgan Asset Management WORKING GROUP MEMBERS Jacob A. Frenkel William R. Rhodes Former Chairman, JPMorgan Chase International President and CEO, William R. Rhodes Former Governor, Bank of Israel Global Advisors Former Chairman and CEO, Citibank Maria Ramos Co-Chair of the Secretary General’s Task Force on Adair Turner Digital Financing of Sustainable Development Senior Fellow and Former Chairman of the Goals, United Nations Governing Board, Institute for New Former Chief Executive Officer, Absa Group Economic Thinking Former Chairman, Financial Services Authority GROUP OF THIRTY iii Axel A. Weber Ernesto Zedillo Chairman, UBS Director, Yale Center for the Study of Former President, Deutsche Bundesbank Globalization, Yale University Former President, Mexico John C. Williams President, Federal Reserve Bank of New York Former President, Federal Reserve Bank of San Francisco EXPERTS Debarshi Basu BlackRock Jennifer Bell COP26 Carole Crozat BlackRock Stuart Mackintosh Group of Thirty Sini Matikainen COP26 iv MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY TABLE OF CONTENTS Foreword .................................................................................................................................................................. vii Acknowledgments ................................................................................................................................................ viii Abbreviations ............................................................................................................................................................ix Executive Summary ................................................................................................................................................xi Introduction ................................................................................................................................................................ 1 CHAPTER 1. Public Policies .....................................................................................................................................5 CHAPTER 2. The Importance of Predictability and Credibility–Lessons from Central Banking ..... 13 CHAPTER 3. Strategy and Governance .............................................................................................................21 CHAPTER 4. Disclosure .........................................................................................................................................27 CHAPTER 5. Risk Management ...........................................................................................................................31 CHAPTER 6. Returns ..............................................................................................................................................37 Conclusion ............................................................................................................................................................... 43 References ............................................................................................................................................................... 47 Group of Thirty Members 2020 .........................................................................................................................51 Group of Thirty Publications since 2010 ........................................................................................................ 55 GROUP OF THIRTY FOREWORD he Group of Thirty (G30) seeks to deepen essential to both the world’s environmental and eco- understanding of international economic logical viability as well as economic sustainability. and financial issues, and to explore the inter- The report makes a series of recommendations which, Tnational repercussions of decisions taken in the public if implemented, will accelerate the transition to a net and private sectors. This report, Mainstreaming the zero economy, and boost long-term economic and Transition to a Net-Zero Economy, continues the financial returns. G30’s long tradition of evidence-based, actionable On behalf of the G30, we extend our thanks to the studies. co-chairs, Mark Carney and Janet Yellen, for their Decisions taken by governments, market regula- able leadership of the Working Group on Climate tors, financial institutions, and investors, now and Change and Finance, and to the Project Director, over the medium term alone, will have major impli- Caspar Siegert. We also thank the G30 members who cations for how livable and sustainable the world will participated in the study as Steering Committee and be. The report makes clear that these decisions are Working Group members. Jacob A. Frenkel Tharman Shanmugaratnam Chairman, Board of Trustees Chairman Group of Thirty Group of Thirty GROUP OF THIRTY vii ACKNOWLEDGMENTS n behalf of the Group of Thirty (G30), we and firms are embedding net-zero goals within their would like to express our appreciation to businesses, practices, and cultures. those whose time, talent, and energy have We extend our thanks to Project Director Caspar Odriven this project to a successful completion. We Siegert for his careful drafting and support. We also would like to thank the members of the Steering thank our team of experts, including Debarshi Basu, Committee and Working Group on Climate Change Jennifer Bell, Carole Crozat, and Sini Matikainen. and Finance, who guided our collective work at every The coordination of this project and many aspects stage. The intellect and experience of this diverse and of project management, Working Group logistics, and deeply knowledgeable team was essential as we sought report production were centered at the G30 offices to craft the report’s findings and recommendations on in Washington, D.C. This project could not have how best to mainstream and accelerate the transition been completed without the efforts of our editor, to a net-zero economy. Diane Stamm, and the work of Executive Director, We also must thank the many leaders in the finan- Stuart Mackintosh, and his team, including Desiree cial community who supported the study and agreed Maruca, Emma Prall, and Peter Bruno. We are grate- to be interviewed, illuminating how their institutions ful to them all. Mark Carney Janet Yellen Co-Chair Co-Chair Working Group on Climate Change and Finance Working Group on Climate Change and Finance viii MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY ABBREVIATIONS BCBS Basel Committee on Banking Supervision °C degrees Celsius CCC Committee on Climate Change CCS Carbon Capture and Storage CEO chief executive officer methane CH4 carbon dioxide CO2 ESG Environmental, Social and Governance EU European Union F-gases fluorinated gases FSAP Financial Sector Assessment Programs G30 Group of Thirty GDP gross domestic product GHG greenhouse gas gigatonnes carbon dioxide equivalent GtCO2eq IAIS International Association of Insurance Supervisors ICBC Industrial and Commercial Bank of China Limited IFRS Foundation International Financial Reporting Standards Foundation IOSCO International Organization of Securities Commissions IPCC Intergovernmental Panel on Climate Change nitrous oxide N2O NGFS Network of Central Banks and Supervisors for Greening the Financial System R&D research and development TCFD Task Force on Climate-related Financial Disclosures tonnes of carbon dioxide equivalent tCO2eq GROUP OF THIRTY ix EXECUTIVE SUMMARY he evidence that climate change is posing Rises in global average temperatures have already unprecedented risks to our livelihoods is reached 1°C, and could exceed 1.5°C as early as 2030. Toverwhelming. Atmospheric concentrations At current rates, we will have exhausted the remaining of carbon dioxide (CO2) have reached the highest “carbon budget” that is consistent with limiting global levels in 800,000 years. Over the last three decades, warming to 2°C within the next 25 years. To avert the number