Climate Finance Takes Center Stage at COP26

Today, climate finance is the focal point of discussions in Glasgow. The premise of today’s theme at COP26 is fairly simple. As the logic goes, poorer countries need funds to pay for projects that can ween them off of carbon-intensive fuels; richer countries, as they’ve been emitting more than a few lion’s share of carbon in the footprint, should foot the bill.

Part of this conversation involves curbing the finance of fossil fuel projects worldwide, including those in developing nations. While the longstanding argument behind such investments is that they can lift poorer countries out of “energy poverty,” critics say those promises are more than often not met.

It’s been a rocky journey for climate finance so far

It all sounds relatively simple – until one gets into the climate finance weeds, as in the pesky details surrounding who exactly, and when and how, these funds will be paid in the first place. Back in 2009, wealthy nations were part of a brokered agreement in which they promised to pay $100 billion annually to poorer nations through 2020 in order to finance climate-related projects. Last month, the governments of Canada and Germany admitted that the world’s richest economies did not hold up their part of the bargain: a shortfall smaller and poorer nations had been saying all along.

“We are not asking for handouts, we are asking for compensation for damages, as a result of the profligacy of these developed countries,” Molwyn Joseph, minister of the environment for Antigua and Barbuda, told Financial Times yesterday. “Those that emit this carbon, that is causing climate events, should pay.”

The countries behind that promise say they will pay off their climate finance IOUs, but the funds won’t come entirely through until 2023 – thereby adding an air of tension wafting above Glasgow. The ongoing tussle over climate finance could “make or break” the COP26 talks, add FT’s reporters Leslie Hook and Joanna S. Kao.

The global financial sector says it’s ready for a transformation

While governments’ ministers and cabinet secretaries are trying to hammer out an agreement in between issuing public statements, the global financial sector says it will step up its efforts.

Earlier today, a coalition of insurers, banks and investors backed by $130 trillion in assets say it will place tackling climate change at the center of its members’ work. Meanwhile, at least 20 countries announced that they will stop any financing of fossil fuel projects beyond their shores by the end of next year.

Dubbed the United Nations Glasgow Financial Alliance for Net Zero, as of press time this group includes about 450 financial companies spread across 45 nations. As the New York Times describes the coalition’s pledge, it could result in “a transformation of the global financial system and would help businesses, financial firms and entire industries undergo fundamental restructuring for a carbon-neutral future,” wrote the Times’ Liz Alderman and Eshe Nelson.

“The architecture of the global financial system has been transformed to deliver net zero,” said Mark Carney, a former governor of the Bank of England and currently a U.K. and U.N. climate envoy. “We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account.”

Climate finance and the uncomfortable question about fossil fuel projects

It all sounds ambitious, but there are more pieces to this climate finance panel. Earlier today, BlackRock CEO Larry Fink noted that the pressure to decarbonize the economy is largely falling on public companies – with the result that more carbon-heavy assets are moving to portfolios run by private companies, which aren’t subjected to the same level of public disclosures. While some evidence suggest private equity investments in fossil energy are dwarfed by those in renewables, Fink did sound this warning in Glasgow, according to FT: “We are seeing more hydrocarbons moving away from public entities to private entities. If we’re serious about this . . . we have to ask all of society to move forward or we’re lying to ourselves, we will not get to a net-zero.”

The U.K. government says its already moving quickly to address the concerns laid out by leaders such as Fink. Rishi Sunak, the Britain’s Chancellor of the Exchequer, announced his plans to ensure his country is the world’s first net-zero financial services center. Details of how that center would work are still under wraps, but according to Sunak said the results would be that companies based within the country would be required to disclose a “clear, deliverable plan” as part of the U.K.’s goal to secure a net-zero economy by mid-century.

The challenge COP26 organizers face can be summed up in two words that leave many climate action activists jaded: net-zero and pledge. As for the word pledge, the reasons behind any cynicism lie in part with that aforementioned 2009 climate action promise. And when discussing the concept of net-zero, while the commitments appear impressive, the devil lurks in those details. Critics of the net-zero bandwagon point to shortcomings such as the reliance on unproven technologies along with the lack of disclosure in how these net-zero journeys will actually work.

But, if the delegates at COP26 can come up with solid plans to ensure climate finance can actually work – as in strategies that include: investments in renewables; ending subsidies for fossil fuels; bold climate finance plans for countries that need them the most; and assurance from companies worldwide that environmental justice principles are aligned with business decisions. If such commitments come forward in Glasgow during the next several days, then we can discuss COP26 as an event that had far more “make” than “break.”

Image credit: Jeremy Bezanger via Unsplash