COP27: Government action crucial to climate finance, says Carney

Finance experts outline four demands for policymakers at COP27, including driving up clean energy investment and aligning financial regulation with net zero. Meanwhile multilateral development banks’ climate commitment is questioned and the Net Zero Asset Management initiative announces new targets.

Governments must do more to create a supportive regulatory environment if financial institutions are to meet their net zero pledges, and private sector climate finance is to be ramped up to the levels required to decarbonise in line with the Paris Agreement. This was the clear message from former Bank of England governor Mark Carney and other finance experts attending Finance Day at COP27 in Egypt, on Wednesday. 

In the current polycrisis, “marshalling resources to manage the existential risk” of climate change, won’t come from governments, said Carney, since the public sector has too many other issues to contend with, such as the cost of living crisis. Private finance is therefore “essential” and requires “ambition, actions and accountability”, he said.

Governments have a significant role to play in enabling this, and Carney outlined four demands for policymakers from members of the Glasgow Finance Alliance for Net Zero. 

First, they must develop economy-wide transition plans and specific sector pathways, most importantly in the energy sector, he said. These must include policies to increase the ratio of clean energy to fossil fuel investment from 1:1 today to 4:1 by the end of the decade. Second, governments should align financial regulation with net zero by making net zero transition plans mandatory, he said. 

Third, policymakers should commit to pricing the externalities of carbon and ensure that carbon credit markets play a “meaningful role in channelling capital from the wealthiest companies in the advanced world to projects in the developing and emerging world”, Carney said. (This demand pre-empted plans announced by US climate envoy John Kerry later in the morning that attempted to address how such an idea could be put into practice.) Fourth, governments need to mobilise capital for emerging and developing countries by ensuring “official finance draws in private finance at scale”. 

The financial services industry has demonstrated increasingly high levels of ambition on climate in recent years, said David Atkin, CEO of the UN Principles for Responsible Investment, adding: “It is by no means ‘job done’, we need to see that ambition continue to increase”. He insisted, however, that the industry was at a point where “additional backing from the public policy sphere” was required, and warned: “We won’t see climate action taken by investors at the level we need unless they’re operating in a supportive regulatory and legislative environment.” 

MDB commitment questioned

Meanwhile, the role of multilateral development banks remained in the spotlight. In the morning opening session, World Bank president David Malpass insisted his institution was “committed” to climate action, and that it had “dramatically” increased climate finance and support for countries suffering from disasters in the face of extreme weather events. In the afternoon, the World Bank and other major MDBs issued a joint statement on their climate finance commitment, noting that in 2021 they delivered $51bn to low and middle income countries, of which $33bn was for mitigation and $18bn for adaptation; and $31bn to high income countries, of which 95 per cent was for mitigation and 5 per cent for adaptation. 

“MDBs have highlighted proudly that only 62 per cent of their climate finance is flowing to low- and middle-income countries, a statistic completely at odds with securing a globally just energy transition,” said Bronwen Tucker, public finance campaign co-manager at Oil Change International. 

The Big Shift Global campaign – which brings together a multitude of NGOs from the global north and the global south, including Oil Change International – said the statement “missed the mark” by failing to provide specific details on how MDBs will align their financial flows with a 1.5C, or if they will phase out fossil fuel financing. The campaign also cited a recent survey conducted with World Bank employees, which indicated that more than half of them believed the institution was not doing enough to align itself with the Paris Agreement.

NZAM targets

Also yesterday, the Net Zero Asset Managers initiative announced initial targets on the path to net zero for 86 investors. This announcement takes to 169 the total of asset managers to have set initial targets since the initiative was launched nearly two years ago. NZAM now boasts 291 asset managers, representing more than $66tn in assets under management. The latest targets mean around $21.8tn is committed to be managed in line with achieving net zero by 2050 or sooner. These figures were “only a starting point”, representing what asset managers “can feasibly commit to today”, the organisation said. 

The focus must now be on “supporting managers to increase their targets and turning commitments into action with an emphasis on supporting real world emission reductions,” said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, which supports NZAM alongside the Principle for Responsible Investment group. “Without this, the likelihood of limiting temperature rises to no more than 1.5C becomes more distant,” she said.

Atkin at the PRI said accelerating industry action meant “bringing more managers on board with NZAM and taking steps like implementing near-term accountability mechanisms to ensure their targets are acted upon”. Tackling greenwashing was also vital, he added.

Meanwhile, the Paris Aligned Asset Owners initiative, which includes 57 signatories representing pension and superannuation fund with over $3.3tn in assets under management, published its first progress report. This  includes 29 case studies showing the strategies and approaches used by asset owners to meet the criteria set by the initiative. PAAO also announced initial target disclosures for a further 13 signatories, including AP7 and Lloyds Banking Group Pensions Trustees Limited, bringing the total to 40.

“The leading pension and superannuation funds are systemically important investors, with growing pools of assets invested for the long-term interests of millions of beneficiaries,” said Rebecca Mikula-Wright, CEO of the Asia Investor Group on Climate Change and the Investor Group on Climate Change, which are network partners of PAAO. “They are particularly exposed to the risks and opportunities of climate change.”

Photo credit: Bloomberg