Skip to main content

Companies, investors, climate and COP

COP26 blah-blah

GreenBiz Group

Reprinted from GreenFin Weekly, a free newsletter. Subscribe here.

Mark Carney has a tough job.

As the United Nations special envoy for climate action and finance, and British Prime Minister Boris Johnson’s climate adviser, Carney is tasked with mobilizing the trillions of private-sector dollars needed to transition the global economy to net zero by 2050.

So far, things haven’t been going so well. Insufficient investment on both the public and private side has made money a key priority, and a potential spoiler, at this year’s round of international climate talks, now underway in Glasgow, Scotland (a.k.a. COP26, a.k.a. humankind’s 26th shot for saving ourselves from climate catastrophe).

Disagreements about money could ruin everything because, 12 years ago, a bunch of rich nations pledged to channel $100 billion a year in climate adaptation and mitigation funding to less-wealthy countries by 2020. Then they didn’t. I suppose to be fair, I should say they fell short.

Fool me once

Now, the well-heeled welshers have asked for a second chance. The G7 — Britain, Canada, France, Germany, Italy, Japan and the U.S. — earlier this year reaffirmed their commitment to "jointly mobilize $100 billion per year from public and private sources, through to 2025."

Disagreements about money could ruin everything.

The countries that were promised $100 billion say they’ll believe it when they see it. Because, you know, fool me once…

"Their credibility is now shot," Saleemul Huq, an adviser to the Climate Vulnerable Forum of 48 countries, told Reuters, adding the broken promise could "sour everything else" at the talks.

The bad blood, among other issues, has created a backdrop of dwindling expectations for COP26, as Carney and company, a group of financiers that includes BlackRock CEO Larry Fink, hold a separate meeting this week to discuss ways of their own to mobilize private sector climate financing.

The aim of the Glasgow summit is to secure enough new commitments and funding to keep the Paris Agreement’s 1.5 degrees C target within reach. And COP26 organizers have dedicated today (Wednesday, Nov. 3) entirely to climate finance discussions. As of this writing, both public and private funding announcements were expected at the mainstage event, but skepticism about whether they would be enough still reigned.

A year ago, Carney, former head of the Bank of England, laid out something of a roadmap for private climate finance, "Building a Private Finance System for Net Zero," which is worth revisiting.

The strategy includes four priority areas: reporting; risk management; returns; and mobilization. And while much of what needs to be accomplished depends on world leaders actually agreeing on a way forward — and sticking to it — the framework includes plenty of "desired deliverables and calls to action for the financial sector" that can be accomplished by organizations such as the Task Force on Climate-Related Disclosures, insurers, banks, asset owners and managers, and companies themselves.

Here are some actions the private sector could take (and, in some cases, is taking) to make the financing of net zero happen.

Reporting

  • TCFD: create a public record of compliance with TCFD recommendations, best practice examples and refined TCFD recommendations around scenario analysis.
  • Stock exchanges and standard setters: develop TCFD-compliant listing guidance.
  • Auditors: consider climate-related risks and assumptions during assurance of company reports and accounts.
  • Companies: commit to voluntary TCFD disclosures.

Risk management

  • Central banks, financial firms and credit rating agencies: embed use of scenario analysis in the financial sector using the Network for Greening the Financial System reference scenarios.
  • Companies: promote real economy scenario analysis through development of sector-specific scenarios and guidance.
  • Insurance sector: develop the insurance products needed to de-risk the transition and improve physical risk modeling to increase coverage.

Returns

  • Banks, asset owners and managers, and academic and nongovernmental organizations: review approaches and establish best practice/standards for financial institutions to assess the credibility of companies’ transition plans to net zero.
  • Investors, asset managers and portfolio alignment analysts: review approaches and create a framework for measuring whether investment portfolios align with climate targets.
  • Conduct regulators and investors: develop consumer-friendly metrics that reflect investment alignment with net zero.
  • Banks and asset owners and managers: Commit to align portfolios and lending with net zero, disclose accordingly and publish credible transition plans.
  • TCFD, standard setters and countries: incorporate data that helps measure transition readiness of firms and portfolio alignment of investors into list of recommended disclosures.

Mobilization

  • Private-sector investor coalitions and countries: develop a pipeline of investable projects by connecting available capital to projects that meet pre-defined investment principles, such as the Climate Finance Leadership Initiative’s investment readiness guidelines.
  • Insurance sector: close the protection gap and improve resilience in climate-vulnerable countries.
  • Financial market infrastructure providers, banks and companies: encourage the development of the infrastructure for scaling up high-quality voluntary carbon markets.

A lot of this is simply laying-the-groundwork stuff, necessary but hard to get excited about at this point. Still, it’s worth noting that in the year since the strategy was published, progress has been made.

For example, 92 new asset managers recently joined the Net Zero Asset Managers initiative, bringing the total to 220 investors managing $57.4 trillion. These latest numbers mean investors representing nearly 60 percent of the world’s total managed assets are committed toward achieving the goal of net-zero emissions by 2050 or sooner.

More important, though, 43 signatories have issued progress reports, disclosing that $4.2 trillion out of a possible $11.9 trillion, or 35 percent of their total assets, are in line with net zero.

At a time when pretty much everyone has reached their limit with the meetings, and the commitments — and general blah, blah, blah — reporting actual progress is critical for companies and investors, even if it falls short of hopes or expectations.

In pointing to the inconsistency among ESG metrics (apparently, he says, there are more than 1,000 approaches to calculating scores), Carney’s strategy notes that ESG environmental measures don’t typically align with net zero. They tend to capture a single point in time that focuses on inputs (for example, targets) rather than outcomes (the achievement of targets).

And targets are soooooo 2015. All anyone really wants to hear about at this point are outcomes. Just ask the 48 countries still waiting on their $100 billion-a-year allotment.

[Want to know what is happening at COP26? Follow our full coverage.]

More on this topic