To fight climate change, put markets to work

The battle over climate change is putting an old maxim to the test: Where there’s a will, there’s a way. The COP26 climate summit in Glasgow offers reasons to hope it will be proven correct, particularly on a challenge at the heart of the issue: financing the global transition to clean energy.
There is no longer any doubt about the will. Today, more than two-thirds of global gross domestic product is covered by some form of commitment to reach net-zero emissions. Turning these commitments into real action is the focus of COP26. And while much of the attention during and after the conference will be focused on national governments, the fact is: They can’t do it alone.
Ramping up adoption of clean energy and other sustainable infrastructure fast enough to avoid the worst impacts of climate change will require trillions of dollars in new investment — likely in the ballpark of $100 trillion. Most of that will have to come from the private sector, especially after the enormous toll that the pandemic has taken on governmental budgets. This is particularly true in emerging markets and developing countries, where the need for investment in clean energy is most acute.
Growing economies mean growing energy demands, and if that demand is met with coal rather than clean energy, we will all pay a tremendous cost: in physical damages from more severe weather patterns, stresses to food and water supplies, and increases in deadly air pollution.
Private-sector leaders understand how dangerous and destructive those costs could be. They want to help prevent them, and not just out of altruism. Businesses and investors have significant exposure to risks from climate change — and at the same time, the race towards clean energy and sustainable infrastructure is a major opportunity for investment.
Especially over the past year, the number of companies and countries making net-zero commitments has risen dramatically. But this is uncharted territory for them. There’s no off-the-shelf plan for reaching net zero, and the methods for doing so will vary widely by industry. Nor are there universally accepted benchmarks for defining progress, which raises the risk of “greenwashing.”
These are crucial challenges that must be addressed as companies begin to turn their pledges into plans. Success will depend largely on industry coordination and public accountability. Until recently, there was no mechanism for achieving either.
It will also require vast sums of capital. When the UK assumed the COP presidency in partnership with Italy some 18 months ago, $5 trillion of private financial assets were committed to net zero. Now more than 450 major financial institutions across 45 countries, controlling assets of more than $130 trillion, have joined the Glasgow Financial Alliance for Net Zero, or GFANZ. GFANZ is the gold standard for climate commitments — our best opportunity to get credible, high ambition in the financial sector quickly. Good intentions, as we know, are not enough: Roads to hotter places are paved with them. We must turn intentions into action — and the alliance, which we now serve as co-chairs, is helping to do that. Each member has committed to achieving net-zero emissions across their portfolio of assets, and to backing up their words with actions. Participants in the alliance must agree to set short-term targets, including their fair share of 50% reductions by 2030, and report on their progress. GFANZ ensures that any pledges are in line with the science on climate change and anchored in the UN’s Race to Zero.
The alliance’s work includes a focus on mobilising private capital into emerging markets and developing countries to build sustainable infrastructure and to accelerate the transition to clean energy. One example is the Climate Finance Leadership Initiative’s first country pilot in India, which is helping to strengthen local conditions for investment and develop and scale innovative climate finance solutions.
The alliance has urged governments to take action to reach the net-zero commitments they’ve made.

—Bloomberg