GFI: COP26 shifted the dial on climate finance, but the devil is in the detail

EXCLUSIVE: While many questions remain about whether the financial commitments made at COP26 are robust, the fact that they were made on an unprecedented scale evidences a "paradigm shift" and an opportunity to accelerate funding flows that benefit climate and nature.

GFI: COP26 shifted the dial on climate finance, but the devil is in the detail

That is according to the Green Finance Institute’s (GFI) chief executive Rhian-Mari Thomas, who spoke to edie to reflect on the global climate finance trends of 2021, ahead of the Institute’s participation in edie’s Sustainability Leaders Forum (scroll down for details).

Thomas was one of more than 38,400 people to have attended COP26 in Glasgow last November, which has been described by many thought leaders as the most business and finance-centric COP to date.

The Presidency dedicated an entire day of the two-week schedule to finance, on which Chancellor Rishi Sunak unveiled a vision to make the UK the “world’s first net-zero financial centre” and Mark Carney’s Glasgow Financial Alliance for Net-Zero (GFANZ) confirmed that its supporters now represent more than $130trn of assets under management – 40% of the global total.

These commitments made headlines but were quickly scrutinized. Green groups asked whether Sunak’s commitments would amount to a whole net-zero centre, and organisations including Reclaim Finance called on GFANZ to set a stricter decarbonisation roadmap and to have its credibility verified externally.

For Thomas, these questions are important – but should not detract from the fact that, even a few years ago, private finance commitments on the scale seen in Glasgow would simply not have been made. Instead, they lay the “fundamental building blocks” for the scaling of finance, meaning detail can be added as time goes on.

She explains: “I think the important thing about this is the big signal it sends. $130trn isn’t a war chest; we know that. It’s not comparable to the $100bn that we keep trying to pledge in direct funding. But what it shows is that the people who have their hands on the levers of finance were there, they were listening. This has been elevated to a board-level dialogue and must be a top priority for chief executives at mainstream financial institutions.”

Thomas also believes the level of commitment from private finance presents a “huge opportunity” for more impactful dialogue and partnerships between financiers in the private and public sectors – both domestically in the UK, and on the international scale.

“That $130trn will only move if it can make money,” she argues. “This really signals, to me, the importance of reform for development banking institutions, be that multilateral or bilateral development agencies or institutions.

“There really has been a paradigm shift and we now need to respond to it. Policymakers must recognise this and, those that are able to put finance forward in a more concessionary manner need to be thinking about how they can really leverage that to crowd in the trillions.”

Investing in nature

The benefit of governments backing emerging environmental solutions so that the private sector feels confident to invest has been proven in sectors such as wind and solar. The International Energy Agency (IEA) declared in 2020 that solar is officially the cheapest form of electricity generation in history, with the price of new solar lower than new coal and gas in almost all geographies.

Lessons learned from clean energy and other decarbonisation levers, Thomas says, could have applications beyond cleantech. Specifically, they could now be applied to tackle the barriers hampering investment in nature conservation and restoration; this was another major focus point at COP26, which took place between the two halves of the UN’s 15th convention on biodiversity.

By UN estimates, $4.1trn of funding will need to be provided for nature-based solutions by 2030, up from just $133bn to date, to help mitigate the worst of the twin climate and nature crises. This trend will then need to accelerate further, unlocking $8.1trn in total by 2050. The UN has also emphasised the importance of private sector involvement, given that public sources have, to date, accounted for more than 90% of funding for nature-based solutions.

The London-based GFI is responding to this challenge on several fronts. It hosts the Secretariat for the Taskforce on Nature-Related Disclosures (TNFD), with support from the UN, for one. The Taskforce is developing a framework to help businesses measure and reduce their nature-related risks and expects to launch it in 2023.

Additionally, the GFI launched a resource called ‘Hive’ in December 2021. It is intended to increase private investment in nature restoration and nature-based solutions “in and for the UK” and, as well as engaging providers of private finance, the project involves collaboration between the Institute and the UK Government, academics, NGOs and land managers.

Summarising the Institute’s approach, Thomas says: “As with carbon, we need to elevate the dialogue around the risks that exposure to degraded ecosystems are having in the financial sector. That’s the first step – elevating the dialogue, making people aware and making it a priority. Building on that, coming up with the right solutions to minimise risk and making sure there are more nature-positive financial flows.

“These are well-trodden paths and I think a lot of the lessons learned on carbon and climate will read across. This is a reason for optimism as it should enable us to move quicker.”

Thomas’s optimism is not blind. Of course, if there were not numerous barriers to increased investment in nature, the funding gap would not exist (at least not on as great a scale).

She summarises: “Unfortunately, there are a lot of barriers – some larger than others. But none are insurmountable and there is real momentum and interest in solving them.”

She points, as many others have done in recent times, to challenges in the fields of selecting metrics and collecting robust data. Biodiversity and ecosystem health are notoriously harder to measure than, for example, carbon emissions generated at a power plant or factory.

As nature-based solutions are an emerging asset class for private investors, Thomas explains, there is also apprehension about the risks involved and when the likely benefits will materialise. Standardised measurement of benefits, along with “patient capital” (credible nature-based projects should be around in the long-term and benefit creation may well increase with time) and a natural capital approach should help, Thomas argues.

To this latter point, she notes that natural capital approaches are “viewed as really unpalatable by some people but we already have a price on nature – £0”. This willingness to write off negative nature impacts as unimportant externalities, in other words, is a huge part of why we are in a nature crisis in the first instance.

There is also, in Thomas’s opinion, a storytelling-related piece of the puzzle. She says: “Amplifying and publicizing examples of where nature-positive investing has happened successfully is where we see another massive gap in the market.. storytelling needs to resonate with financiers.”

This storytelling is part of Hive’s work and there is a growing body of organisations also working in this space, including The Greenhouse from Wonderoom and the University of Oxford’s Nature-Based Solutions Initiative.

Of course, as time goes on, there will be more success stories to tell and case studies to be written. As the UN’s own paper on the economics of nature-based solutions states: “While a mature natural system may provide a myriad of ecological and economic benefits, it may take years or decades of growth for a newly reestablished area to fully realise the same benefits”.

Join the conversation at edie’s Sustainability Leaders Forum 2022

edie’s biggest event of the year is returning as a live, in-person event for 2022. The dates have been moved from early February to March, to ensure collaboration and celebration can take place in person. 

The Sustainability Leaders Forum will now take place on 7, 8 and 9 March 2022, and will unite hundreds of professionals for inspiring keynotes, dynamic panel discussions, interactive workshops and facilitated networking. There will also be digital tickets.

Taking place at London’s Business Design Centre, the event will feature more than 60 speakers, including experts from Natural England, the Green Finance Institute, the World Economic Forum and the Centre for Climate Repair. We’re planning our most diverse and inspirational programme yet.

Click here for full information and to book your pass.

The GFI’s executive director Ingrid Holmes is appearing at the Forum. She will be co-facilitating a leadership session at 11.30am on Day Two (9 March) on the topic of sustainable investment strategies, along with experts from the Aldersgate Group, Nationwide, Barclays, ShareAction and BSI Group. 

Sarah George

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