The Paris Agreement at the United Nations Climate Change Conference in 2015 marked a significant moment in the global effort to mitigate climate change through the commitment to pursue efforts to limit the global temperature increase to 1.5°C above pre-industrial levels. Achieving this goal will require a step-change in finance flows to sustainable investments, and new approaches to assessing and addressing climate risk.

The cross-border nature of financial services requires significant and robust international cooperation and coordination. Given this global nature, there is a need for international forums with a strong mandate to promote sustainable development. This has also led to many other international climate action forums (herein after called international forums) which seek to address these challenges.

International forums play pivotal roles in shaping climate policies and sustainable finance strategies, providing the necessary space for nations and organisations to collaborate, set common goals, exchange information and share best practice. Yet as governments and industry have sought to deal with environmental, social and governance (ESG) challenges, the sheer number of initiatives with different objectives and mandates has made developing a strategic approach to engagement difficult. The politicisation of the ESG debate has further compounded this. The result is a perceived misalignment of international bodies and initiatives leading to fragmented markets with multiple – and sometimes duplicative – frameworks.

Given this backdrop, this report seeks to examine how the European Union and United Kingdom could collaborate more effectively to ensure these organisations operate to maximum effectiveness. The report observes the interplay between the different actors and distinguishes between three types of forums listed below and evaluates the impact of these on advancing climate action.

1. Intergovernmental forums
2. International sustainability framework and standard setting bodies
3. Market-led forums

It also assesses the interaction between the EU and the UK within these forums.

The findings suggest that these forums have succeeded in advancing the global climate agenda but still require enhanced commitment and coordination. While the International Sustainability Standards Board (ISSB), the Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG) should be praised for their impact on corporate reporting, it is important that this dialogue is strengthened and that collective guidance is released to minimise the cost and burden for preparers of sustainability reports.

Other networks hold significant potential for impact but have failed to tap into it fully. The International Platform on Sustainable Finance (IPSF) for instance would benefit from a renewed and clear mandate as well as more active participation by all members. Given the diversity of membership, the IPSF is an opportunity to follow in the footsteps of the G20 Sustainable Finance Working Group (G20 SFWG) to serve as a platform for coordination to enable a blueprint for global transition pathways.

There is equally a huge role for market-led initiatives, such as the Glasgow Financial Alliance for Net Zero (GFANZ) and the International Capital Market Association (ICMA), to play in achieving net zero. Their work to support intergovernmental bodies by developing and promoting global standards and principles, identifying risks, and encouraging cooperation among their members to deal with cross border regulatory challenges, is crucial.

It is evident that successful “top-down” and “bottom-up” approaches will likely be required if policymakers want to foster investor confidence and therefore channel capital to where it is required. This interaction allows cross border industry groups to utilise the principles formed from intergovernmental groups and demonstrate the research-driven benefits of maximum alignment, while respecting the different jurisdictional needs.

The signing of the Memorandum of Understanding to establish the new EU-UK Financial Regulatory Forum (EU-UK Forum) is a timely opportunity to strengthen EU-UK collaboration to support the journey to net zero. It will be imperative to ensure that the EU-UK Forum discusses and supports enhanced cooperation and coordination in international bodies and to guarantee the participation of the relevant actors. This will enable both jurisdictions to take a leading role in implementing a coherent international approach to addressing climate issues.

Key Recommendations

• The UK and the EU should prioritise and facilitate engagement and conversations between standard setters, such as the ISSB and EFRAG, to enhance regulatory coherence around sustainability reporting.
• The UK and the EU should identify common priorities and work together to build strong coalitions within the G20 to catalyse action from key members within the group.
• The EU and the UK should use the G7 climate club to develop a globally coherent and applicable approach to carbon pricing and develop provisions designed to hold members accountable.
• The UK must leverage its experience with the Transition Plan Taskforce (TPT) and share its expertise with the IPSF, to promote a globally consistent approach to transition planning.
• UK and EU collaboration should seek to improve the efficacy of the IPSF by:
  • narrowing its remit and determining a more focussed workplan which dovetails with the requirements of the Paris Agreement and the workstreams of the G20;
  • allocating additional resources and providing expertise and support to increase the capacity of those producing output and to align with other forums, where helpful; and
  • generating better connectivity with other forums with more diverse membership and expert groups.
• The EU, in collaboration with other IPSF members such as the UK, must provide more clarity on the direction of the IPSF by narrowing its remit to focus on specific issues. The IPSF should be utilised to drive intergovernmental and cross sector collaboration on transition pathways.

To explore this topic in more detail please read the Advancing Net Zero: The EU and UK in International Climate Action Forums report, produced in collaboration with the City of London which can be found here.