After a day full of pledges from large companies and countries across the world, leaders cast their attentions to finance on the 3rd day of the UN climate conference COP26.
Here are the key takeaways from the third day:
Finance Chancellor Rishi Sunak announced plans to see the UK commit to becoming the world’s first net zero aligned financial centre. Under Sunak’s proposal, financial institutions will be required to publish net zero transition plans that detail how they plan to adapt and decarbonise by 2050. Even though it will not be mandatory, as home to the City of London, one of the world’s major financial centres, the UK “has a responsibility to lead the way” in financing efforts to fight global warming, said Sunak.
A “historic” climate commitment was announced, with private companies pledging over US$130trn of financial assets. This comes from over 450 firms based in 45 countries across six continents and from all parts of the financial industry known as the Glasgow Financial Alliance for net zero. Some of the companies involved are NatWest, Aviva, the London Stock Exchange and HSBC.
UK Prime Minister, Boris Johnson, said: “Uniting the world’s banks and financial institutions behind the global transition to net zero is crucial to unlocking the finance we need to get there – from backing pioneering firms and new technologies to building resilient economies around the world. The Glasgow Financial Alliance for Net Zero will lead this charge ahead of COP26 to scale-up our ambition, accelerate our shift and help us to build back greener together.”
The UK government has said that this huge commitment could fund the transition to net-zero emissions, including moving away from coal, shifting to electric cars, and planting more trees.
Environmental groups, however, have said that the financial plan has too much ‘wiggle room’. Greenpeace UK’s head of politics, Rebecca Newsom, said that “the world’s first net-zero aligned financial centre would be one in which financial institutions and companies are required by law at the outset to bring their lending and investments in line with the global goal to limit warming to 1.5 degrees. Instead, these new rules seem to allow plenty of wiggle room for financial institutions to continue with business as usual, rather than ‘rewiring’ the system as the Chancellor claims.”
Developing countries have repeated that they want to contribute to the net-zero goals, but they have struggled to access funding over the years. Even though $130trn of financial firepower to tackle the climate crisis has been promised, developing countries are sceptical on how accessible this funding will be. This comes off the back of the past pledges of $100bn a year from rich countries having not been met. As the UN’s trade and development arm, Unctad, noted last week, adaptation costs for developing countries have doubled in the past decade due to inaction. “These will only rise further as temperatures increase, reaching $300bn in 2030 and $500bn in 2050,” it said.
Sonam P Wangdi, chair of the Least Developed Countries (LDC) Group, said that with climate change and the COVID-19 pandemic, access to funding was a “huge issue” and took developing countries anywhere between four to five years to secure a loan. To address this issue, the process that developing countries need to go through needs to be simplified to be more easily accessed in an emergency.
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Twelve years ago, at a United Nations climate summit in Copenhagen, rich nations promised to provide less wealthy nations with over US$100 billion a year by 2020; however, they have not reached these goals. In October, Saleemul Huq, director of the International Centre for Climate Change and Development in Dhaka, said that “compared with the investment required to avoid dangerous levels of climate change, the $100-bn pledge is minuscule. Each year, trillions of dollars will be needed to meet the 2015 Paris agreement goal of restricting global warming to “well below” 2 °C, if not 1.5 °C, above pre-industrial temperatures. And developing nations (as they are termed in the Copenhagen pledge) will need hundreds of billions of dollars annually to adapt to the warming that is already inevitable. “But the $100bn is iconic in terms of the good faith of the countries that promised it.”