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Bankers, investors, and world leaders agree that a global
financial system focused on a transition to net zero will require
trillions of dollars in investment through collaboration between
the public and private sector.
At 3 November gatherings on what was dubbed "finance day" of the
COP26 climate change meeting in Glasgow, Scotland, COP26 President
Alok Sharma said countries have made their pledges, and finance
needs to follow.
A number of new pledges were made prior to and on the first two days of COP26,
including from the Global Energy Alliance for People and Planet,
the Breakthrough Energy Catalyst, and the High Impact Partnership
on Climate Change.
And on the basis of analysis by the Organisation of Economic
Co-operation and Development, Sharma confirmed that developed
countries would make progress toward meeting the $100 billion a
year goal in 2022 and meet it in 2023. The $100 billion a year
pledge was made 12 years ago at the UN climate summit in Copenhagen
to help developing countries mitigate and adapt their
infrastructure to the vagaries of climate-driven impacts, such as
wildfires, hurricanes, and heat waves.
Moreover, Sharma said "we will likely be above $500 billion in
aggregate" over the five-year period from 2021 to 2025.
He also mentioned that the UK has doubled its climate finance
commitment to £11.6 billion ($15.88 billion) through 2025.
Effective use of funds
During her turn at the podium, US Secretary of the Treasury
Janet Yellen noted that the size of the funding is just one piece
of achieving the global net-zero future. "We also have to make sure
it is being channeled as quickly and effectively as possible," she
said.
Yellen also announced that US is joining the UK to fund the
Climate Investment Fund's Capital Markets Mechanism, which will
leverage private capital by providing $500 million per year for
clean technology funds.
Bonds from this mechanism are set to be issued in 2022 in the
City of London and could mobilize up to $700 million annually, with
the potential to leverage a further $70 billion from both the
private and public sector.
The price tag for the net-zero transition is estimated at
upwards of $100 trillion in the next three decades, Yellen noted.
"The gap between what governments have and the world needs is
large, and the private sector needs to play a role," she said.
A recent analysis by UN High Level
Champions found $32 trillion of investment in decarbonization is
needed this decade to put the world on a path to net zero in
alignment with an International Energy Agency transition scenario. This
analysis also said the private sector could provide 70% of total
investments needed to meet net-zero goals.
"Make no mistake, the money is there if the world wants it,"
said former Bank of England Governor Mark Carney.
Private capital
As the co-chair of the Glasgow Financial Alliance for Net Zero
(GFANZ), Carney announced that its members,
which includes bankers, insurers, stock exchanges, pension funds,
and asset managers, have committed more than $130 trillion in
private capital to transforming the global economy to a path to net
zero.
These commitments, coming from more than 450 firms spanning 45
countries that make up GFANZ, "can deliver the estimated $100
trillion of finance needed for net zero over the next three
decades," Carney said.
Private capital also will be harnessed to accelerate the
transition to renewable energy and hasten coal-fired power plant
retirements.
The Asian Development Bank launched the Energy Transition
Mechanism (ETM) to accelerate the retiring of coal-fired power and
the move to clean energy, one of the key goals for COP26. As part
of the pilot phase in Indonesia, the Philippines, and Vietnam, the
ETM is expected to raise $2.5 billion to $3.5 billion to retire two
or three coal-fired plants per country.
And the International Finance Corporation, together with asset
manager Amundi, announced a new $2 billion fund to help channel
capital from institutional investors into sustainable and green
bonds in emerging markets.
To play their role effectively though, "financial markets need
good quality, comparable information about the effects of
sustainability-related risks and opportunities for making
investment decisions," said Erkki Liikanen, chair of the
International Financial Reporting Standards Foundation
Trustees.
Common standards
Liikanen announced the creation of a new international body, the
International Sustainability Standards Board (ISSB), that would be
charged with developing a comprehensive global baseline for
sustainability disclosure in the financial markets.
Also, UK Chancellor Rishi Sunak announced steps that would go
beyond just requiring companies to disclose climate risk. Noting
that "investors need to have as much clarity and confidence in the
climate impact of their investments as they do in the traditional
financial metrics of profit and loss," Sunak said the UK is
creating a Net Zero Financial Center that will require financial
institutions and listed companies operating in the country to
publish "clear-deliverable" net-zero transition plans that detail
how they will adapt and decarbonize as the UK moves towards to a
net-zero economy by 2050.
Meanwhile, through the work of the Network for Greening the
Financial System (NGFS), which represents 100 central banks and
supervisors, 38 central banks in countries comprising 67% of the
world's emissions have committed to climate-related stress tests
that would review the resilience of the world's largest financial
firms in the face of severe climate-related risks.
And 33 central banks and supervisors, representing 70% of the
world's emissions, have committed to issuing guidance to firms on
managing climate-related financial risks.
The NGFS issued a statement of declaration
reiterating its commitment to greening the financial sector, an
action that was endorsed by the US Federal Reserve Board.
Posted 03 November 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst