COP26 Summit Turns Its Focus to a Contentious Question: Who Pays?
GLASGOW — Some of the world’s biggest financial institutions on Wednesday vowed to mobilize trillions of dollars to help shift the global economy toward cleaner energy as negotiators at the United Nations climate summit struggled with the question of how to pay for the enormous costs of climate change.
At the global climate summit here, a coalition of banks, investors and insurers that collectively control $130 trillion in assets said it would commit to reaching net-zero emissions across its investments by 2050. It was essentially a pledge to make climate change a central focus of major financial decisions for decades to come.
“We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account,” said Mark Carney, the former head of the Bank of England who is leading the coalition, along with the billionaire and former New York mayor Michael Bloomberg.
That pledge was met with skepticism from environmentalists, who noted that details were vague and that many banks still invest hundreds of billions each year in fossil fuels.
“Either they stop financing fossil expansion, or their net-zero commitments are green wash,” said Jason Opena Disterhoft, senior climate and energy campaigner at Rainforest Action Network, an environmental group.
Money has long been a big sticking point in the global fight against climate change, and tensions over the topic have flared again at the Glasgow summit convened by the United Nations.
A decade ago, the world’s wealthiest countries pledged $100 billion per year in climate aid by 2020 to help poorer countries transition to cleaner energy and protect themselves against the growing dangers from heat waves, floods, droughts and wildfires as the planet warms.
So far, those promises have not been met. By one estimate, wealthy countries are still falling short by tens of billions of dollars per year. And critics have said that even this money has been poorly targeted. A large fraction of aid to date has been handed out as loans, which developing countries often struggle to repay. And only a tiny sliver of financing has gone toward efforts to adapt to climate change.
At the summit, which continues until Nov. 12, developing countries and smaller nations that emit only a tiny fraction of the world’s greenhouse gases pleaded with wealthy countries to do more.
“Our countries are the least liable for the damage to the world’s environment, but we pay the highest price,” said Gaston Browne, the prime minister of Barbuda and Antigua, which has struggled to rebuild after a Category 5 hurricane hit the country in 2017.
Mr. Browne noted that even as the world’s richest countries have failed to meet their promises on climate finance, major economies have spent roughly $3.3 trillion since 2015 subsidizing fossil fuel production and consumption, according to one recent study.
“We can all agree that this is regressive,” Mr. Browne said. “I plead that we do not squander this crucial opportunity.”
Last month, diplomats from Canada and Germany announced a plan for rich nations to meet their goal of $100 billion per year in climate aid by 2023.
But as the dangers of global warming continue to mount — particularly since nations have not yet committed to slash their emissions deeply enough to keep global warming at a relatively safe level — those financial needs are growing as well.
“That $100 billion is trivial in light of what’s actually needed,” said Saleemul Huq, the director of the International Center for Climate Change and Development in Bangladesh. “But the credibility of wealthy nations is on the line. If they can’t even deliver what they promised, why should we believe anything else they have to say?”
Treasury Secretary Janet Yellen said the United States would support a financing mechanism that aims to direct $500 million a year to move developing countries away from coal-based energy and toward wind, solar and other low- and zero-carbon energy sources.
But she noted that the real cost of climate change would likely run to the trillions of dollars.
“I agree we all must do more, and the United States is stepping up,” Ms. Yellen said. But, she added, “the gap between what governments have and what the world needs is large, and the private sector needs to play a bigger role.”
To that end, a group of philanthropic foundations and international development banks also announced a $10.5 billion fund to help emerging economies with growing energy needs make the switch from fossil fuels to renewable sources.
The group, known as the Global Energy Alliance, aims to draw in more donors in the coming weeks. At the moment, it has pulled in $1.5 billion from the Rockefeller Foundation, the Ikea Foundation and the Bezos Earth Fund, along with $9 billion from development banks such as the African Development Bank and the International Finance Corporation. The alliance says it aims to raise $100 billion in public and private capital to expand access to clean sources of electricity for a billion people in developing countries.
The money is needed to jump-start clean energy technologies that would not otherwise attract private investment, said Raj Shah, the president of the Rockefeller Foundation, which helped set up the alliance.
“Accelerating climate transitions in developing countries will not happen if an immediate 20 percent return on every investment is necessary,” Mr. Shah said. The money will support initiatives such as developing mini electricity grids in parts of rural India, helping Indonesia shut down some of its oldest and most polluting coal-fired power plants and developing a hydropower project in Sierra Leone.
But the day’s biggest announcement came from the coalition of investors controlling $130 trillion in financial assets that pledged to use that capital to hit net-zero emissions targets in their investments by 2050. The group, known as the United Nations Glasgow Financial Alliance for Net Zero, is made up of 450 banks, insurers and asset managers in 45 countries.
While voluntary, the agreement shows a commitment by a broad range of financial institutions — banks, insurers, pension funds, asset managers, export credit agencies, stock exchanges, credit rating agencies, index providers and audit firms — to use their money to push businesses to slash emissions.
Environmentalists and negotiators from developing countries said they remained concerned that money to help countries adapt to sea-level rise and other increasingly extreme disasters was still lacking.
Projects like building sea walls, planting mangroves, improving drainage and other ways of preparing for climate change disasters are not always attractive to investors because they don’t turn profits, experts said. That means the vast majority of climate finance is still tilted toward investments in wind, solar and other means of mitigating emissions.
At the same time, vulnerable countries at Glasgow are arguing for a separate funding mechanism to help deal with disasters that they can’t adapt to, often referred to as “loss and damage.” But that proposal faces opposition from wealthier countries, which fear it could open the door to future compensation claims.
Amid all the fighting, however, some observers said the growing momentum around climate finance was a step up from where negotiations were a decade ago.
“There’s the critique that some of this is a bit wishy-washy and some it’s a bit greenwashy and vague, and yes,” said Rachel Kyte, dean of the Fletcher School at Tufts University and a climate adviser for the United Nations secretary general. “But six years ago, did anyone think we would have $130 trillion in some kind of club moving in the same direction? No.”
“We’re not there yet,” she added, noting that the world is still not providing nearly enough finance to address the vast challenges of climate change. “But things are starting to move in the right direction.”
Reporting was contributed by Somini Sengupta, Liz Alderman and Jenny Gross