COP26 One Year On: Finance
Written by Tara Sallis, Policy Team Volunteer
Finance is often considered a dull and difficult topic but it is essential to reaching our climate goals because finance is the fuel that powers change. Nowadays, it is publicly listed companies attracting finance from the equity markets that create much-needed innovations in EVs, renewable power sources and sustainable consumer products. At the same time, institutionally-led projects like carbon pricing and new carbon disclosure regulation for companies create the financial structures that we will need to track and implement improvements. In other words, understanding how money is flowing globally and how we need to change that is core to generating real-world progress.
At COP 26 there were three central themes on the agenda related to finance: public finance, private finance and the just transition. These three areas were tied together with the most prominent commitment to emerge from the COP discussions: $100bn of climate finance from both public and private sources to be invested by developed nations into developing nations. This goal was reaffirmed having been missed several times already, with the target year for its completion now being 2023.
What has happened since COP26?
Private finance has been challenging to move forward because ideas of climate friendly finance do not fit easily into the norms and agreements that financial firms currently operate within, where profitability, growth, and shareholder value have been the guiding principles. However, progress was made with the Glasgow Financial Alliance for Net Zero, which is a new group of 450 financial firms across 45 countries that have all agreed to work towards net zero using science-based targets for themselves and the companies they finance.
When it comes to public financing, Scotland responded to these discussions at COP26 by increasing the climate financing that it will deploy by 50% from £24m to £36m. However, First Minister, Nicola Sturgeon also acknowledged that Scotland can only have a limited effect on overall public spending globally. £36m is a small amount in the context of the billions of pounds moving through the financial system every year and as a smaller nation, Scotland can only hope to lead by example.
What can we do next?
Sometimes, looking at the progress of climate finance can be disheartening because this is an area that has been slow to change and where progress has been hard to achieve. For example, the headline figure of $100bn of climate finance promised at COP26 has been continually missed in the past and this goal has been pushed back without a clear plan as to what will be different this time. There have also been continual difficult debates over which nations are most responsible for climate change, and therefore how the costs of resolving it should be spread globally.
Despite this, there are reasons to remain optimistic that finance can be an unlocking factor in the climate transition. Below are two of my favourite thinkers who I think bring more ambitious and creative approaches to the finance sector that could help us plot a path to climate solutions.
Mariana Mazzucato, Moonshot Capitalism. This book explores how the public and private sectors have cooperated to create huge change in the past by working towards ambitious projects rather than creating piecemeal tasks and bureaucratic structures. One example of this was the US getting a man on the moon via NASA and other government agencies. The UK’s information still segregates off public finance as relating to infrastructure and private finance as relating to technology and innovation in a more traditional and potentially restrictive vision of how financing works. Perhaps we can reimagine the way that government can guide finance towards ambitious societal goals and the innovation that it can spur.
Lynn Stout, The Myth of Shareholder Value. This book explores the effects of a financial system that has put share price returns above all other metrics as a measure of success. She suggests that we could move towards an optimistic future where our shared societal interests might also be considered when we value companies, which could encompass the shared benefits that we get from preserving the environment.