Financing COP 26 outcomes


It was a watershed moment, according to Mark Carney. The UN Special Envoy for Climate Action and Finance was introducing the Glasgow Financial Alliance for Net Zero (Gfanz): over 450 banks, asset managers and insurers that would deliver more than $100tn in climate transition financing by 2050.

“Up until today there was not enough money in the world to fund the transition,” said Mr Carney, as he spoke at COP26. “Right here, right now is where we draw the line. The $130tn is more than is needed for the net zero transition globally.”

That $130tn is the headline figure of combined assets under management and lending by Gfanz members, all of which have made their own net zero commitments. But it does not follow that this amount will be fully available to finance the net zero transition.


There is certainly huge potential for financial institutions to play a leading role in climate change mitigation. The global shift to a low-carbon economy will require unprecedented capital reallocation. According to some estimates, by 2030 some $4tn of investment in clean energy will be needed each year – and this will have to be accompanied by a rapid reduction in investment in fossil fuels and other major sources of emissions.

However, many financial institutions have some way to go in this area. For example, a recent assessment of 112 banks by the European Central Bank found that none are close to fully aligning their practices with the ECB’s supervisory expectations for climate-related and environmental risk management, although a majority have made “meaningful progress” in factoring climate risk into their lending decisions. While this is not a straightforward measure of how sustainable current portfolios are, it does suggest that major changes will be needed to meet the Gfanz agenda.

Another concern it that the agenda itself is not as transparent as it might be. Important issues, such as how Gfanz will measure its progress, and how it defines net zero, are unclear – although the UN has suggested that a panel of experts be collated to propose clear standards to measure and analyse net zero commitments.

Nor is it clear how far Gfanz’s impact will extend. What sort of influence will its members have, for example, on large state-owned or state-controlled emitters?

Furthermore, if Gfanz members seek to achieve their targets through divestment – withdrawing from ‘dirty’ businesses and backing ‘clean’ ones, rather than helping ‘dirty’ ones reduce their emissions – they may be able to meet their individual net zero targets while providing only limited financial support for the wider transition to net zero.

Governments and climate finance

If there was both enthusiasm and caution at COP26 about the potential of Gfanz, there were similarly mixed feelings about the government-driven provision of ‘climate finance’ – support for climate change mitigation and adaptation from both public and private sources, which may be e.g. loans, guarantees, export credits, bilateral funding or funding from multilateral bodies.

The conference saw a lot of pressure from developing countries for developed nations to increase the provision of climate finance, coupled with some disappointment at what was finally agreed.

At COP15 in 2009, developed nations committed to a goal of mobilising USD 100bn a year by 2020, to help developing countries. The Glasgow Climate Pact “notes with deep regret” that the pledge has still not been met and urges developed nations fully to deliver on it urgently. It also calls for various other increases in climate finance – but, like the 2009 pledge, none of these calls can be enforced if governments do not meet them.

To date, most climate finance has been used to fund emissions-cutting projects in middle income countries, such as renewable energy developments. But many of these could have been funded without assistance, as viable commercial investments. This has frustrated low income countries, many of which are highly vulnerable to climate change and need urgently to finance adaptation.

Acknowledging this frustration, the Glasgow pact urges developed countries to at least double their collective provision of climate finance for adaptation to developing countries by 2025, “in the context of achieving a balance between mitigation and adaptation in the provision of scaled-up financial resources”.

Much climate finance to date has been provided through loans. There are concern that this has increased the financial burden on poorer nations, which may struggle to repay their debt. The Glasgow pact “calls for a continued increase in the scale and effectiveness of climate finance from all sources globally, including grants and other highly concessional forms of finance.” But how far genuinely concessional finance will be extended to vulnerable nations remains to be seen.

A system entirely focused on net zero?

A key issue for governments is to facilitate and encourage the sort of private sector engagement promised by Gfanz. One aspect of this may be to de-risk investment through public/private collaboration.

For US special envoy for climate John Kerry, the solution is to “blend the finance, de-risk the investment, and create the capacity to have bankable deals. That’s do-able for water, it’s do-able for electricity, it’s do-able for transportation.”

Another key issue is regulation. Mark Carney has highlighted the impact this can have on private sector finance. He argues that the more governments implement policies such as “carbon pricing, bans on internal combustion vehicles, national targets to phase out fossil fuel subsidies, and mandatory climate-related financial disclosures … the more finance will have the certainty and confidence to invest early”. In his words, “we must build a financial system entirely focused on net zero.”