The World Climate Conference COP26, which ended mid-November, delivered important results against climate change. We show these and explain what sustainable finance means and what role the financial sector is playing in the fight against climate change.
The goal of the 26th World Climate Conference COP26 in Glasgow was to advance measures to achieve the goals of the Paris Agreement and the UN Framework Convention on Climate Change.
Achieving Net Zero: The contribution of the World Climate Conference COP26
The Glasgow Climate Pact was adopted at COP26 – almost 200 countries agreed to it. Aside from the one-sentence explanation of keeping the temperature rise below 1.5°C, these are the main points discussed by the delegates:
- Coal will be “phased down”.
- $500 billion to developing countries in the next 5 years to help them cut emissions and cope with the impacts of the climate crisis.
- A database, communications and reporting system (Santiago Network) for countries and organisations to identify and catalyze opportunities and mobilize assistance to address loss and damage from climate change.
Some countries and NGOs described the results as “disappointing”. However, most countries agreed that the deal was balanced at this point, given their differences. The New Zealand chief negotiator summarized it as follows: “The text represents the ‘least bad’ result.”
More information about COP26 and its results can be found here.
Explanation of terms: Net Zero
Net Zero (net zero emissions) means that, through various measures, humans remove the same amount of the greenhouse gases they produce from the earth’s atmosphere. Accordingly, net zero means climate neutrality. The goal of global climate policy: to achieve Net Zero respectively climate neutrality by 2050.
Sources: Avenir Suisse and IPCC
What is the connection between the measures mentioned and the financial world?
The importance of sustainable finance
The way the world is currently managing its economy is not sustainable. The ecological level is overstretched and has reached its capacity limits. The financial sector has a central role to play in fighting climate change. On the one hand, enormous sums must be invested to promote sustainable measures, such as renewable energies. This is in order to achieve the UN’s Sustainable Development Goals. On the other hand, huge amounts of money are still flowing into organizations, projects and investments that do not meet sustainability criteria.
What role does finance play in net zero?
One of the key objectives identified in the run-up to COP26 was to mobilize finance. The Glasgow Financial Alliance for Net Zero (GFANZ) was launched to raise standards, drive ambition and ensure that Net Zero commitments are transparent, credible and consistent. Trillions must flow from the private and public sectors for Net Zero to be achieved.
“The private sector is realizing that climate risks are very important for their portfolios and they need to align them to a more sustainable way of doing things.”
Patricia Espinosa, Executive Secretary of the UN Framework Convention on Climate Change
500 global financial services firms have responded and agreed to align $130 trillion – 40% of the worlds’ financial assets – with the goals set out in the Paris Agreement, including limiting global warming to 1.5°C. An encouraging sign.
In the next article, we will do a deep-dive on the roadmap and the role of institutional investors, governments and cities to financing Net Zero.