Today’s Top of the COP: Finance goes green and resilient

The race is on for private finance towards net-zero emissions by 2050 and new partnerships are set to drive exponential growth in resilience investments. By Climate Champions | November 3, 2021
  • Through the Glasgow Financial Alliance for Net Zero, over $130 trillion of private capital is now committed to transforming the economy for net zero. GFANZ has grown 25-fold since April to 450 firms from 45 countries, according to a progress report it publishes today.
  • These GFANZ commitments can deliver the estimated $100 trillion of finance needed for net zero over the next three decades. That’s 70% of total investments needed, according to new analysis commissioned by the UN High-Level Climate Action Champions.
  • A Global Resilience Index will launch today to improve the way insurers, financiers and investors measure the resilience of countries, companies and supply chains. A number of grants and investments are also going towards building resilience in at-risk countries, including $100 million from the Green Climate Fund to support new technologies.
  • The UN’s Net Zero Asset Owner Alliance, responsible for $10 trillion in assets, commits to phase out most thermal coal assets by 2030 for industrialized countries and worldwide by 2040. Thirty-three GFANZ members are now part of the Powering Past Coal Alliance, with 11 new firms joining at COP26.
  • UK Chancellor Rishi Sunak announces today new requirements for firms in the UK to publish plans for decarbonizing through 2050. The International Financial Reporting Standards Foundation also announces a new International Sustainability Standards Board to develop globally consistent climate and broader sustainability disclosure standards for the financial markets.

Financing Net Zero 

Financing the transition: Reaching net-zero emissions by 2050 requires $125 trillion of investment, including $32 trillion in six sectors over the next decade, according to the new Financing Net Zero Roadmap by Vivid Economics, commissioned by the High-Level Champions.

  • Electricity requires $16 trillion
  • Transport – $5.4 trillion
  • Buildings – $5.2 trillion
  • Industry – $2.2 trillion
  • Low-emission fuels – $1.5 trillion
  • Agriculture, forestry and other land use – $1.5 trillion

Annual investment must triple to $2.6 trillion in 2021-2025 compared to 2016 and 2020. Asia Pacific needs $1.1 trillion per year; Europe and North America $500 billion each per year. The private sector could provide 70% of that, Vivid Economics found.

Marrakech Partnership Climate Action Pathway on Finance: In a net-zero, resilient economy by 2050, every financial decision will take climate change into account and financial flows will drive low-emission and climate-resilient development, according to the Climate Action Pathway on Finance. Price signals will reflect negative externalities in balance sheets and markets will deliver a smooth and just transition to zero emissions and resilience, respecting the planetary boundaries and the value of human and natural health.

Membership grows: Already, firms are turning ambition into action that will align their portfolios with 1.5°C.  Over 90 of the founding institutions of GFANZ have already delivered on setting short-term  targets, including 29 asset owners that have committed to reducing portfolio emissions by  25-30% by 2025 and 43 asset managers that have published targets for 2030 or  sooner. The first targets have also been published by Net Zero Banking Alliance members. GFANZ now counts 450 financial firms from 45 countries, with over $130 trillion of private capital – growing 25-fold since April, according to a progress report it publishes today.

Ensuring rigour and impact: The COP26 Private Finance Hub and High-Level Champions are now taking steps to build confidence in the GFANZ work and ensure that its potential is fulfilled – including creating rigorous and thorough membership criteria, reviewing entry criteria upwards every year, and managing member commitments, governance and processes.

GFANZ members move on fossil fuels and deforestation: Eleven new financial institutions with over $17 trillion in assets under management have joined the Powering Past Coal Alliance at COP26, bringing the total to 33. The Asset Owner Alliance has already published a plan to end unabated coal power use, and the Net Zero Asset Managers Initiative has set out positions on the phaseout of thermal coal in line with limiting warming to 1.5°C. On Tuesday, 33 GFANZ members committed to make best efforts to eliminate agricultural commodity-driven deforestation by 2025.

Finance for Resilience

Up to $100 million of new finance approved for adaptation finance: Lightsmith Group announces up to $100 million of further capitalization of the Catalytic Capital for First Private Investment Fund for Adaptation Technologies (CRAFT) from the UN’s Green Climate Fund. The funding will support agricultural analytics, water harvesting and irrigation, food systems, geospatial mapping and imaging, catastrophe risk modeling and supply chain analytics for six countries in Africa, Latin America and the Caribbean.

Global Resilience Index launching today: Insurance Development Forum, a Race to Resilience partner, will launch a new benchmark tool to improve the way insurers, financiers and investors measure the resilience of countries, companies and supply chains. At the same time, it is launching the Global Risk Modelling Alliance, an initiative formed with leaders of the 20 most vulnerable economies, to enhance local understanding of risk and accelerate the way financial institutions make decisions on resilience investments and residual risk transfer.

A step-change in climate resilient investment: The Coalition for Climate Resilient Investment will today announce an exponential growth in its country programme, growing from one country partner to twenty five countries by 2025. CRRI solutions have stimulated discussions with investors on the mobilization of capital for resilience, effectively initiating the structuring of CCRI’s League of Investment Fund for Resilience (LIFR), which aims to mobilize USD10bn by COP27. Watch the announcement here.

Finance for Developing & Emerging Markets

Investment in developing and emerging countries: GFANZ members expect to take a leading role in mobilizing private finance to support emerging markets and developing countries on their shift to a zero-emissions, resilient economy. They have already identified five initiatives that can help accelerate the transition in areas such as renewable energy and sustainable infrastructure, including:

  • Climate Finance Leadership Initiative Country Pilots: Its India pilot programme provides an example of how governments (India and the UK), domestic and multinational corporations and financial institutions can work together.
  • FAST-Infra: Is focused on scaling up investment in sustainable infrastructure including the establishment of a consistent and global labelling system for sustainable infrastructure assets, giving investors confidence that they will generate long-term, stable returns.
  • Global Energy Alliance for People and Planet: Backed by an initial $10 billion from philanthropies, governments, donors and multilateral development banks, the programme, announced on Tuesday, will accelerate and scale up an equitable energy transition and clean energy access in developing and emerging economies. The goal is to provide 1 billion people with reliable, renewable energy, create 150 million jobs and save 4 billion tonnes of greenhouse gases by 2030.
  • Innovative Finance for the Amazon, Cerrado and Chaco: Scaling innovative financial mechanisms – including farm loan products, farmland investment funds, corporate debt instruments and capital markets offerings – and helping farmers decouple beef and soy production models from deforestation and conversion of natural habitats. Key partners include the UN Environment Programme, The Nature Conservancy, and the World Economic Forum – Tropical Forest Alliance.
  • MOBILIST: Mobilizing large scale investment flows through public listed markets and partnering with select initiatives to be listed on exchange. Backed by the UK’s Foreign, Commonwealth and Development Office, with partners in the UK Treasury, Department for Business, Energy and Industrial Strategy, London Stock Exchange Group and development finance institution CDC Group.

→ Why it matters: GFANZ brings together the full breadth of the global financial system, as an umbrella of seven partner financial sector net-zero initiatives. Mainstreaming private finance will help all companies realign their business models for a zero-carbon resilient world before 2050 and fund the necessary initiatives and technological innovations, according to the Race to Zero’s 2030 Breakthroughs.

Green Finance Requirements & Standards

UK’s new requirements: UK Chancellor Rishi Sunak is today announcing new requirements for firms to publish plans for transitioning to net zero emissions by 2050. This follows the GFANZ call on G20 leaders in October to set policies that would accelerate the financial system’s transformation, including financial regulation reforms that support the net-zero transition; a phaseout of fossil fuel subsidies; carbon pricing; and requirements that public and private enterprises make plans and report progress towards net-zero by 2024. They also urged governments to work with farmers and businesses to end illegal deforestation; promote sustainable, regenerative agriculture; and support a just transition.

International financial reporting standards: The international accounting standards body, IFRS, today announces a new International Sustainability Standards Board to develop globally consistent climate and broader sustainability disclosure standards for the financial markets. This step has been welcomed by finance ministers from more than 50 countries in six continents and follows support from the G7 to make climate disclosures mandatory.

Quotes

Gonzalo Muñoz and Nigel Topping, UN High-Level Climate Action Champions: “The Race to Zero is all about driving near-term action and systemic changes to put the entire world economy on a trajectory toward net zero emissions by 2050 at the latest. Because the financial sector plays a pivotal role in that transition, the High-Level Champions are delighted that the Glasgow Financial Alliance for Net Zero has united the world’s largest coalition of financial institutions to take credible, impactful actions. Now the focus needs to be on real world outcomes. For these, we need delivery of net zero targets, sector transition and phase out of fossil fuels with a just transition, and to work together on mobilization, nature and resilience.”

Mark Carney, UN Special Envoy for Climate Action and Finance and COP26 Private Finance Advisor to UK PM Boris Johnson: “The rapid, and large-scale, increase in capital commitment to net zero, through GFANZ, makes the transition to a 1.5°C world possible. To seize this opportunity, companies must deliver robust transition plans and governments set predictable and credible policies. This will give finance the confidence to invest, pulling forward climate actions and smoothing the transition to net zero, driving growth and jobs upwards, and forcing emissions downwards. Let’s work together to seize this opportunity.”

Rishi Sunak, UK Chancellor of the Exchequer: “I’m proud that under the UK’s leadership, the number of financial firms committed to net zero plans has tripled, with the assets now covered totalling $130 trillion. Harnessing the trillions of dollars controlled by these companies in the fight against climate change is crucial. So I’ve announced new requirements for firms to publish their net zero transition plans. Together we can provide the cash the world needs to stop catastrophic climate change.”

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