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How to turn climate pledges made into promises kept

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Greetings from the podiums and platforms of the conference centre in Glasgow where I spent yesterday moderating the plenary sessions for COP26, as part of the so-called “finance day”. A few years ago that is a sentence I would have never expected to utter, since “green” issues were largely the preserve of science and policy reporters; now, however, climate change has become a finance story too.

Hence the fact that the FT Moral Money team has been on the platforms (see Simon Mundy’s panel, “How your wallet could save the world”) and we are reporting on events.

“It is not common for finance ministers to attend COP. In fact I am the first US Treasury secretary to do so,” Janet Yellen observed on one such panel, before celebrating how the world has changed.

Will this shift deliver results? I heard good and bad news from yesterday’s debate: private sector financial groups have committed to use $130tn of funds to pursue net zero goals — but developed governments have failed to meet their $100bn aid targets; the current financial system is not fit for purpose, developing counties say — but efforts are under way to reform this. Read on for some details. (Gillian Tett)

Day 4 in brief

  • Finance executives and climate activists are not the only voices promoting COP, more than 30 celebrities including the likes of Pitbull, Ellen DeGeneres and Leonardo DiCaprio partnered with UN-backed The Right Here, Right Now climate alliance to bring attention to the conference on social media.

  • Rich governments have pledged $100bn a year to help emerging markets reduce emissions but where does all the climate finance go? Leslie Hook, the FT’s environment and clean energy correspondent, writes that the nitty-gritty questions on how funding is distributed and where can be an “imperfect” picture.

For the rest of today’s news see our COP26 live blog.

Talking point

There are two big “P” words which will determine whether the bold finance pledges we heard on Wednesday can possibly be turned into real action: “pot” and “plumbing”. 

The reason “pot” matters is that there needs to be a big pool of funds available to support the costs of the climate transition, which is currently estimated to be around $100tn. Yesterday a number of developing countries expressed their deep disappointment at the failure of the developed world to hit its $100bn-a-year target for climate finance aid to the developing world.

“The $100bn target is an unfinished pillar,” said Aiyaz Sayed-Khaiyum, Fiji’s economy minister. And the failure to meet this target has undermined the developing world’s trust in the current debates.

“We want to know if the promises made will be promises kept,” said Akinwumi Adesina, president of the African Development Bank.

But this smaller-than-expected public sector pot came hand-in-hand with a much bigger-than-expected potential private sector pot, after financial institutions that control $130tn of assets pledged to use these in support of a net zero world, under the organisation of the Gfanz group.

This is an impressive sum — on paper. But it is not yet truly clear what it means, as the FT’s Lex team pointed out. And this pot will only be effective if that second “P” — the plumbing — works. As Sayed-Khaiyum said in a passionate speech, most of the current climate finance initiatives simply do not work well for developing countries right now, because they are unpredictable, incomplete and expensive. When Fiji recently issued green bonds, for example, “the optics were great but the interest rates were high”, he said. And when they seek development funds they rarely know if these are a grant or loan.

Sri Mulyani Indrawati, finance minister of Indonesia (the forthcoming head of the G20), echoes those criticisms. And to counter that, multilateral development banks promised yesterday to be more proactive in developing blended finance platforms, highlighting projects in places such as Pakistan, India and Indonesia.

Meanwhile, standard setters promised to usher in a consolidated green reporting system for financial entities, to channel more money into climate projects. Companies will need to contend with this in their reporting “in a couple of years, or so,” says Erkki Liikanen, head of the IFRS Foundation. Or as Ashley Alder, chair of the Iosco board, observed: “Setting standards is crucial for getting proper market pricing [for climate].” Separately, Jane Fraser, head of Citi, said that she was now working with Oliver Bate of Allianz and Larry Fink of BlackRock, to start trialling the Gfanz pledges in relation to two business sectors — steel and aviation.

So far, so striking. But whether these aspirations can be executed remains to be seen. In the months ahead Moral Money will be tracking the “pot” and “plumbing”. (Gillian Tett)

Quote of the day

Janet Yellen at COP26 yesterday

Janet Yellen yesterday became the first US Treasury secretary to attend a UN COP. In a speech, she highlighted the Biden administration’s $11bn of climate financing for developing countries (though the commitment awaits approval from Congress).

However, in a theme that has become increasingly apparent as COP progresses, Yellen called on private businesses to do more to fund global warming mitigation.

“No amount of public financing alone will be sufficient to meet the demands of the climate crisis. Private capital is essential to our success. As we work to mobilise this capital, we must continue to focus on addressing the challenges that emerging markets and developing countries face in attracting private sector financing,” Yellen said.

Beyond Glasgow: The worldview

The alphabet soup of climate accounting standards is losing its letters.

On Wednesday, the London-based IFRS Foundation said it would complete a merger of the Climate Disclosure Standards Board and the Value Reporting Foundation by June 2022.

Calstrs, the California pension giant, called the merger “a landmark announcement”. The new group marked “a significant step forward in improving corporate disclosure of climate-related information around the world”, said the Investment Company Institute, which represents asset managers.

“You can’t change what you can’t measure, and the creation of globally consistent and transparent sustainability disclosure standards will strengthen our capital markets,” said Bill Thomas, chair and chief executive of KPMG.

Chrystia Freeland, Canada’s deputy prime minister (and a former FT editor) noted that one of the group’s new offices would be in Montreal. “This will put Canada at the centre of the important global work needed to build a net zero financial system and grow a prosperous green economy,” she said.

As with all standards-setters, the central question for this new climate disclosure group will be how much influence companies will have in setting requirements. Too much corporate influence could lead to diluted disclosure requirements — information that investors and the public will not find helpful.

As with most developments in the alphabet soup of climate accounting, Moral Money will keep you updated. (Patrick Temple-West)

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