Two Steps Forward

COP24 and the color of money

GreenBiz

Adapted from GreenBuzz, a weekly newsletter published Mondays.

The 2018 global climate negotiations are behind us, a successful if not grueling ordeal aimed at finding consensus among nearly 200 countries on how to solve climate change. COP24, in Katowice, Poland, will be known as an inflection point in the international effort to combat global warming, although not necessarily a positive one.

There was the usual: the arguments between rich and poor nations about how much each should be willing to spend and sacrifice; debates over the level of ambition to which nations should strive — 1.5 degrees Celsius? 2 degrees? something more or less? — and imploring speeches about how little time we have to course-correct the trajectory of spaceship Earth to avoid crippling floods, droughts, fires, pestilence and other catastrophes of a seemingly biblical nature.

The mood in Katowice was urgent and dire, given the news of the past year or so. The wildfires and other calamities of 2018 were top of mind, as was the backsliding of major fossil-fuel-producing countries, which sought to soften, if not sabotage, the summit's goals. The rhetoric within the cavernous hall reflected this, with phrases such as "suicide pact," "rogue nations" and "mass extinction" being uttered — not by activists but by diplomats speaking from the podium at a United Nations event.

A magnificent 15-year-old Swedish schoolgirl named Greta Thunberg lambasted delegates Thursday, telling the assembly of grown-ups, "You are not mature enough to tell it like it is." She reminded the international community how "the sufferings of the many pay for the luxuries of the few."

It was, without doubt, a chilling experience — and I’m not referring just to the frosty, snowy weather during my week in southern Poland.

But one thing cut through all the damning retorts and rhetoric: Investors and banks are waking up to the risks and opportunities of a changing climate — but mostly the risks. While "socially responsible investing" has been around for decades, mainstream institutional investors are weighing in for, arguably, the first time — representing trillions upon trillions of dollars of assets managed by the world’s biggest pension funds and investment managers.

And that’s causing corporations to increase and sharpen their disclosures — not just on how they are affecting climate change but on how climate change could affect them.

Some significant developments from the past two weeks:

  • A group of 415 investors overseeing $32 trillion in assets signed a letter asking governments to phase out thermal coal, set a price on carbon emissions and end fossil-fuel subsidies. The fund managers said climate change could cause economic damage that threatens their holdings, and that government policy was key to reducing risk. One signatory, global investment manager Schroders, estimated that if no action is taken and the world warms by 4 degrees C (7.2 degrees F), it could cause $23 trillion in global economic losses over the next 80 years.
  • In a study published last week in the journal Nature Climate Change, scientists working with Conservation International and CDP found that companies might be massively underestimating the effect of climate change on their operations. Their analysis of 1,630 companies’ disclosures about the impacts of climate change found that the aggregate risk reported by companies adds up to "only" tens of billions of dollars, whereas most experts estimate the actual cost will climb into the trillions (PDF). The authors note that this gaping discrepancy "reflects both that a large number of companies do not report financial impacts and that many that do are probably underestimating them."
  • During the inaugural Sustainable Finance Week in New York, Bloomberg announced the formation of the U.S. Alliance for Sustainable Finance, convening 15 large financial institutions to drive investment in clean energy and climate resilience projects. The alliance will provide the resources and expertise to identify and streamline existing climate-finance initiatives, encourage greater transparency across climate-related financial risks and opportunities and, ultimately, drive more capital to sustainable investments.
  • Royal Dutch Shell said it would set new public goals around cutting carbon emissions, after months of investor pressure. The oil company will set carbon-output targets annually for the following three or five years as it works to halve its "net carbon footprint" by 2050. The goals will be tied to executive pay.

Real money driving real change. These developments felt hopeful, light-years ahead of the minutia, however necessary, being batted around by the COP negotiators the past two weeks.

In the end, following an all-night session, the diplomats achieved their mission: the Katowice Climate Package, as it was dubbed, aimed at operationalizing the goals set forth in the Paris Agreement. The pact lays out the rules for how countries will provide information about their domestic climate actions, including mitigation and adaptation measures, as well as details of financial support for climate action in developing countries. It also calls on countries to step up their plans to cut emissions ahead of another round of talks in 2020.

"The guidelines will promote trust among nations that all countries are playing their part in addressing the challenge of climate change," the official United Nations statement optimistically put it.

Even the United States, which earlier had threatened to derail the whole process by questioning the climate science, agreed to the deal. Small miracle.

As I rode out of town back to Katowice International Airport, it felt as if I were traversing a black-and-white movie. The grayness of it all, both earth and sky — not to mention the week’s mind-numbing negotiations — was punctuated only by the colors of globalization: the vibrant blue of an IKEA big box, the vivid yellow of the Golden Arches, the kelly green of a BP petrol station.

In a world darkened by distrust and dysfunction, only the prismatic hues of big business — the color of money — shined through.

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