The road to COP26 and the role of finance in tackling climate change

By Gareth Jones

This week was meant to mark COP26 in Glasgow, where countries around the world were set to participate in the most important climate event since the COP21 summit in 2015 and build on the principles of the Paris Agreement.

COVID-19 has meant that the summit has been delayed until next year, however the urgency of addressing climate change means that there are some actions that need to be addressed right away. This is the context for the Green Horizons Summit – a major virtual event held in London this week, bringing together key representatives around the world from national governments, civil society and international finance. Key attendees included HRH The Prince of Wales, Mark Carney, Bill Gates, Larry Fink, Christine Lagarde, Kristalina Georgieva and Andrew Bailey.

In order to fulfil the principles of the Paris Agreement to keep global warming within 1.5°C increase, there needs to coordinated action from policymakers around the world. The transition to a net-zero will impact every part of our economy, however, it is the issue of finance that needs to be prioritised at present. In order to achieve a net zero future, capital needs to be mobilised at a vast scale. It has, after all, been estimated that the transition to net zero will cost £70bn per year in the UK alone. Capital will be needed to invest in clean technologies such as electric vehicles, green hydrogen, and carbon capture, sustainable infrastructure, as well as the finance required for climate mitigation and adaptation and for all the much-needed green jobs.

A key question for the international finance community is how to make this happen. What are the key barriers to investing in the low/zero carbon economy and how can we overcome them? How can we ensure a policy and regulatory environment that allows investors to make returns while also allowing them to finance green growth and incorporate climate risks into their decision making?

It is practical solutions to these questions which have been the driver for events at the Green Horizon Summit this week – including some major policy announcements. Mark Carney, the UK Prime Minister’s Finance Advisor for COP26, unveiled a new private finance strategy, which includes an international framework designed to ensure that every financial decision takes climate change into account – including mandatory climate-related disclosures in line with TCFD standards, as well as coordinated action to manage climate-related financial risks and identifying opportunities for investors to make returns.

This strategy was built-upon by UK government on Monday, when the Chancellor announced that the UK is mandating large companies and financial services to report their impact on climate by 2025 in line with TCFD, as well as announcing the UK’s first sovereign green bonds to be issued in 2021. Elsewhere at the summit this week, the Taskforce on Scaling Voluntary Carbon Markets announced new recommendations for building a framework to enable credible and high-integrity carbon markets for private companies.

The fundamental purpose of these policy initiatives is to turn the increasing number of net zero commitments – whether they are from countries and private companies – into reality. To do that, green finance needs to make a difference to the real economy. It is hoped that events and discussions this week – along with the encouraging news of US President Elect Joe Biden's pledge to re-join the Paris climate agreement – will prompt new optimism and momentum as we look ahead to COP26 next year.