The call to “end the climate crisis” has inspired many governments, businesses, and people to change their habits and restructure societies towards a more sustainable future. However, COP 26 highlighted that the call alone is not enough to save our planet. Industries, governments, and communities have found that behavior changes are difficult to achieve when financing is not available. For some countries, the lack of financing threatens their ability to recover from climate-related catastrophe and become net-zero. For other countries, the lack of financing makes it impossible to phase away from fossil fuels and other unsustainable practices. Historically, those in need have looked to Annex I countries and international banks for the necessary investments, creating a stalemated financing debate as long as the creation of the UNFCCC itself as countries eschew responsibility for funding climate-focused transitions.
COP 26 had a different plan, though. The Glasgow Financial Alliance for Net Zero (GFANZ) has pledged $130 trillion to stabilize and adopt green practices in investments to aid the sustainable transition, while also setting benchmarks to bring GFANZ-member business practices to net-zero as well. GFANZ, comprised of financial institutions that control 40% of the world’s capital, has promised to assume a “fair share” of costs to transition away from fossil fuels. While this funding associated with this transition in the private sector is a source of relief for many in need, it also allows governments to avoid responsibility of providing people-focused funding plans.
Fighting climate change takes a lot of money. A 2019 Morgan Stanley Report predicts that decarbonizing will cost $50 trillion over the next three decades to facilitate the transition towards renewables, clean transportation and fuel, and carbon capture and storage. As calls at COP 26 from the Most Vulnerable Countries warned, this estimate does not account for international policy changes, funding for adaptation, and providing a long-term safety net to support a culture change towards sustainability. More recent estimations from McKinsey predict that a net-zero transition requires $150 trillion in capital spending, with two-thirds of it needing to be allocated to developing economies. Seeing how these estimates change in the span of a year and a half show both how new this data is and how quickly businesses are understanding the scope of the problem and the necessary investments to solve it. This number will only increase over time as the world grapples with the impact climate change has on people, cities, infrastructure, governments, supply chains, companies, and so much more.
While the GFANZ investments could be considered generous, environmental advocates are demanding that these companies, banks, and financial institutions be more transparent about their investments and their respective climate impact in a standardized, global manner. Some companies have created their own guides to address these demands, but individualized commitments are not predictable and do not alone shifit the market towards transparancy.
The International Sustainability Standards Board (ISSB) was announced at COP 26 and is widely supported as a tool to align financial reporting standards to account for sustainability standards, frameworks, and metrics. This move to universalize environmental, social, and governance (ESG) reporting creates a language for people to understand companies’ sustainability-related risks and create broader transparency. These standards are already accounted for in international business norms to outline the vision for business to drive public-private partnerships, and thus lead for climate action.
Are these self-regulations in the ISSB enough? Activists argue that without closing tax loopholes, stopping opportunities for backsliding, and requiring fossil fuel divestment these climate investments are just another strategy used to maximize wealth. The ISSB argues that their transparency prevents companies from greenwashing, which may reduce these concerns if enacted properly and with governmnetal oversight.
These movements by the financial sector have widespread implications for public policy.
First, the failure of global governments to finalize their historic $100-billion financing commitment is a testament to how difficult and nuanced climate change strategy is. However, a world where business is able to come to an agreement before governments, despite debating the problem for a decade, is a signal that the credibility of governments is decreasing as they fail to find solutions to a climate crisis that impacts their citizens, their adversaries, and their allies. Oxfam GB, a global non-governmental organization working to end poverty, told participants at COP 26 that the lack of real, tangible commitments by rich countries to deliver on reducing greenhouse gas emissions and supporting climate financing is an international problem.
Second, businesses are now providing climate-related resources in an unregulated manner in order to fill the gap provided by international governments failing to come to an agreement. Governments need to step in to provide technical assistance and regulation to ensure that efforts to prevent climate change do what they should do: protect and serve the public and our earth. This could look like requiring financial institutions to disclose climate risks in their investments, using economic tools to price in the concealed climate-related negative externalities in business practices, and incorporating climate-related data in national macroeconomic reporting. Prior arguments against regulation claimed that regulation prevents businesses from taking climate action, but that time is behind us. It is clearer than ever that climate investment is the future. These strategies are possible and reliable. In the United Kingdom, the Treasury is requiring all UK-listed companies to release net-zero plans by 2023.
We are in a climate emergency. COP 26 demonstrated that this crisis needs financial investment to prevent the worst impacts of climate change in the next decade. GFANZ and international commitments have mobilized the money necessary to solve the worst of these problems, but careful regulation and strict governmental intervention are essential to make sure that people–especially the most vulnerable–are the priority in this fight.
Kristina Curtiss is a Master of Public Policy student at the University of Michigan’s Gerald R. Ford School of Public Policy. You can find her best climate policy commentary on Twitter at @kriscurtiss.
Image: Week 1 COP 26 Delegates. From left to right: Avik Basu, Muhammad Abdullah, AJ Convertino, Kristina Curtiss, Evan Gonzalez, Naomi Barker, Emily Johnson