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COP-WATCH: Day four at COP26 – How to spend 130 trillion dollars

COP-WATCH: Day four at COP26  – How to spend 130 trillion dollars
03 Nov
Geographical editor, Katie Burton, spends the day at COP26: finance day

I was planning for queues – I could not have been more prepared for queues given reports of chaos at the summit. Which is possibly why I was pleasantly surprised by today’s COP26 experience. After a pleasant sunny morning stroll along the Clyde, I joined the scrum, but given that this year’s summit features record turnout (I was one of 3,781 journalists signed up to attend), the resulting amble into the venue wasn’t unreasonable. Perhaps I’m just easy-going.

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A few odd moments ensued – attendants outside a plenary session led by Mark Carney seemed somewhat bemused as to why journalists would want to gain entry. That aside, if you turned up early enough, you could wangle your way into most of the open events and the queue for an Irn Bru at lunch was no longer than ten minutes. Clearly there’s something to be said for only turning up when all the world leaders have left. 

That said, there were plenty of big names up on podiums throughout finance day. Ex-governor of the Bank of England, Mark Carney, chaired several sessions and led on the big headline of the day: his coalition of international financial companies signed up to tackle climate change (The Glasgow Financial Alliance for Net Zero – Gfanz) controls up to $130tn - ‘more than enough’ to get the world to net zero. Gfanz is made up of more than 450 banks, insurers and asset managers across 45 countries which together have around 40% of the world’s assets on their books. Participants include Santander, Bank of America and HSBC.

This matters, because transitioning economies away from fossil fuels and helping developing countries to build sustainable, renewable energy systems is going to cost a hell of lot. Carney says it will take $100tn. In short, finance is absolutely essential if we are to come anywhere close to net zero. 

$130tn was the ear worm of the day – you couldn’t escape it. The idea that we now have the ‘plumbing’ necessary to move climate change to the forefront of all financial decisions was also oft repeated. There was a sense that a real shift is occurring in the financial world. Janet Yellen, US secretary of the treasury, made the point that it has historically been uncommon for finance ministers to attend COPs – this was her first. It seems fairly extraordinary that the notion of money being important for climate change is only just gaining recognition – but better late than never. 

Listen on however and it appears that the ‘plumbing’ needs significant work. Aside from the fact that the $130tn itself is heavily debated, it is also far from clear how it will be deployed. ‘The money isn’t the problem,’ said numerous people – the problem is getting it where it needs to be, in particular to green and renewable energy projects in developing countries and emerging markets. Rachel Kyte, a former World Bank Group president and former vice president at the International Finance Corporation told me as much in a pre-COP interview: ‘There are so many companies out there doing amazing things, but they are fighting extremely hard to get access to capital. On the other hand, we’ve got trillions of dollars divesting from fossil fuels; we’ve got pension funds all over the world. So we have to take the capital being freed up and connect it to the need. That has always been difficult and that’s still a big part of the stumbling block.’ 

There was a huge amount of emphasis on linking up public and private finance. Sessions tended to feature speakers from both sides. The point was made that public money alone won’t be enough (usually by private investors); the point was made that private finance alone won’t be enough (usually by central bankers). 

Private sector actors from investment funds were keen to demonstrate the increase and strong performance of ESG funds (investments that, in theory, align with strong environmental, social and governance standards) but frequently went on to add that they ultimately have a duty to their investors to secure a good return. Talk of assistance from central banks and multilateral development banks (such as the European Bank for Reconstruction and Development and the Asian Development Bank) to help ‘de-risk’ investments in emerging markets therefore came up a great deal. 

Larry Fink, CEO of asset manager Blackrock, started his speech this morning by imagining the $130tn deployed. ‘Let’s imagine what that does to global economies. Let’s imagine what it could do for jobs, what it can do for the entire world.’ However, he went on to say that ‘deploying [it] is going to be far harder than investing in a normal bond, public equity or treasury bond. We need a system in which we can rapidly deploy that capital to the developing world – and there’s not a system today that can do that.’ In short, funds can’t just invest their clients’ pension money in risky emerging-market projects willy-nilly. Not without help anyway. 

In the afternoon, Rishi Sunak bounced onto the stage to reiterate the idea that ‘the challenge now is not the finance – we need to match that finance with bankable, viable projects,’ but David Malpass, president of the World Bank Group, who spoke shortly after, presented a much more sobering view. He noted that there are nowhere near enough ‘bankable’ green projects around the world (i.e. those likely to provide a return on investment) for us to reach net zero. What’s needed therefore, is a channelling mechanism for private sector money that won’t necessarily be returned. It all comes back to greater collaboration between public and private. 

The good news is that such a system could emerge. Blackrock has announced a new public-private finance vehicle worth $500bn called the Climate Finance Partnership, which it hopes will set a precedent for governments and private companies teaming up to mobilise capital in emerging markets. 'It’s essential that the private and public sector come together to share the risks of addressing sustainability in the emerging world,’ Fink said.

At a closed-door meeting of finance ministers, the UK also reportedly committed £576 million for a package of initiatives to mobilise finance into emerging markets and developing economies. 

It wasn’t easy to suss out concrete examples of this type of public-private finance in action – at least not when it comes to green projects in the developing world – but Jon Johnsen, CEO of Danish pension fund PKA, provided one when he spoke about the firm’s investment into the largest wind farm in Africa, based in Kenya. He explained that the investment worked because the Danish central bank agreed to take on some of the initial risk, allowing the fund to then scale up its offering. ‘It’s a real example of what you can do if you work together.’

Such schemes, along with a whole host of new, creative financial tools, will prove essential if the fabled $130tn is ever to find good home.  

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