Follow the money. Whatever politicians promise, what matters is where investment goes. Does it finance coal or wind power, deforestation or ecological recovery? So the announcement, on day three in Glasgow, that financiers who control 40 percent of the world’s corporate assets, with a value of $130 trillion, are promising to set their future investments toward achieving net-zero greenhouse gas emissions in 2050, is clearly a big deal.
The announcement that the 450 firms had signed up to the Glasgow Finance Alliance for Net Zero was the high point of the day at the UN climate conference in which the British finance minister, Rishi Sunak, declared there was now “a clear common purpose to direct the world’s wealth to protect our planet.”
With governments in charge of 80 percent of the world’s economy already signed up to net-zero targets, said Sunak, private finance would now step up to the plate. The aim was nothing less than to “rewire the entire financial system. Paris set the ambition; in Glasgow, we provide the finance to deliver.”
Investors and companies would be held to account, at least in London, by new requirements that companies listed on the London Stock Exchange must, from 2023, publish detailed plans for how they will move their operations to net zero. This extension of existing requirements for climate disclosure by British companies would make the UK the “first-ever net zero aligned global finance center,” Sunak said.
He admitted that companies will not be told how to achieve net zero or even be required to do it. The hope is that mandatory disclosure of who is green and who is not will trigger an explosion of investment in companies with green trajectories, while the market will penalize those that drag their feet.
Sunak shared the platform with Mark Carney, who as governor of the Bank of England set the green-finance ball rolling at the Paris climate conference in 2015. There, he announced a task force to get companies to disclose their exposure to climate change, which he called a “systemic risk” to the global financial system. The task force provided the blueprint for Sunak’s disclosure rules.
Six years on, Carney is now the UN’s special envoy on climate action and finance. But he told the Glasgow meeting of his “disappointment” that there had been too much business as usual since Paris. “We need an extra trillion dollars a year,” he said.
“But this is the watershed,” Carney promised. “Right here, right now is where private finance delivers.”
So confident is he about the money being available that the real issue, he said, is finding the places to invest it. “The money is here, but it needs net-zero aligned projects — this is what we need to crack over the course of the next year,” he said.
Carney himself shows how difficult disentangling from fossil fuels can be, however. He was recently criticized for having become vice-chair of a Canadian company, Brookfield Asset Management, that remained heavily involved in continued investment in fossil fuels.
Investors still need incentives to pull out of fossil fuels, which remain heavily subsidized by many governments, noted Kristalina Georgieva, the managing director of the International Monetary Fund. Replacing those subsidies with cash penalties on carbon emissions is key, she said.
It is happening in some places. Last year, 17 percent of global carbon emissions were subject to some form of pricing, she said. “This year it edges to 25 percent.” The next big problem is increasingly the price. “Today it is $3 per ton of CO2; by 2030 we need it to be $75 per ton.”
Skeptical climate activists lined up to pour cold water on the idea that Glasgow was a turning point in the world’s financial system. The suggestion is “absurd,” said Tommy Vickerstaff of 350.org, “while global fossil fuel subsidies were $5.9 trillion last year.” Greenpeace’s Rebecca Newsom agreed. “Rather than rewiring the system, as the Chancellor claims,” she said, the announcements allow “plenty of wiggle room for financial institutions to continue with business as usual.”
The answer might be more regulatory sticks and fewer financial carrots.
Still, market forces are starting to deliver some changes in corporate behavior. Insurance companies ought to be among the first to spot which way the wind is blowing. They pick up the pieces when company investments go awry. And they are getting cold feet on coal, at least, said Lindsay Keenan of Insure Our Future, which tracks the stance on climate issues of the world’s top insurers.
“The coal industry is becoming nearly uninsurable,” he told a side meeting. A few U.S. and Bermudan insurance companies still provide a “lifeline,” but even they penalize coal companies with “soaring premiums [and] reduced coverage.”
Outside China, coal burning is a decade past its peak. But insurers still seemingly have confidence in the other fossil fuels. “Most continue to underwrite oil and gas,” Keenan said. Only three of the top 30 — headed by France’s AXA — have so far heeded the recent warning from the International Energy Agency that to cap warming at 1.5 degrees C, all new investment in fossil fuels should cease this year.
While governments expect private investment to pick up most of the cost of fighting climate change, Sunak admitted that rich-world governments had themselves failed to meet their promises. In particular, a pledge they made in 2009 to deliver $100 billion a year in aid to developing countries to help them fight and adapt to changing climate. He promised they would get there by 2023.
As a down-payment, the UK, along with the U.S. and EU, agreed on Tuesday to put $8.5 billion of financial support into helping South Africa, Africa’s bigger miner and burner of coal, to close coal mines and power stations by 2030 and switch toward renewables.
But the conference heard a constant litany of complaints from other developing nations awaiting the promised assistance, as tides rise, storms intensify, and temperatures soar. “It has been a too-little-and-too-late kind of situation,” Sonam Wangdi of Bhutan, chair of the bloc of 46 Least Developed Countries, told the BBC. “We are still not clear about what is happening with the $100 billion, but what we know is that we are getting very little.”
The bad blood created by this failure still threatens to undermine the goodwill that will be needed to secure a wider deal in the final nine days of the conference.
Follow all of e360’s daily coverage of the UN climate summit in Glasgow.