The sixth assessment report of the Intergovernmental Panel on Climate Change confirmed with virtual certainty that ‘human influence has warmed the atmosphere, ocean and land.’ With no additional policies, the report highlights that temperature could increase to 4.8°C by 2100, further compounding the intensity and severity of extreme weather events. With overall global surface temperatures having already increased by 1.09°C, the twenty-sixth UN Climate Change Conference of the Parties (COP26) being held in Glasgow, UK brings urgency for the 196 and parties participating to agree on actions which will limit warming to under 1.5°C.
COP26 is seen as an opportunity for countries to agree on actions which will get the world onto the net zero emissions trajectory by 2030. Some 196 countries, who have submitted climate pledges – Nationally Determined Contributions – will come together in an effort to: secure global net zero by mid-century and keep 1.5 degrees within reach, adapt to protect communities and natural habitats, mobilise public and private finance, and work together to deliver the rules needed to implement the Paris Agreement (Paris rulebook). Countries will be encouraged to finalise Article 6 of the Paris Agreement, agree on financial promises and provisions, protect and restore ecosystems, and build defences, warning systems, resilient infrastructure and agriculture to protect the environment.
Mobilising finance is key to realise the goals of the Paris Agreement. Developed countries are expected to provide further clarity and agree to raise at least USD100 billion in climate finance per year till 2025 for developing countries. International financial institutions and financial institutions are expected to play their part to work towards unleashing the trillions in private and public sector finance required to secure global net zero. Financial institutions need to play an active and align their activities to a net zero world.
To encourage the financial sector to do more, the COP Presidency, the UN High Level Climate Champions and Mark Carney have also launched the Glasgow Financial Alliance for Net Zero (GFANZ). This already unites over 220 firms, together responsible for assets in excess of USD86 trillion, from the leading net zero initiatives across the financial system to accelerate the transition to net zero emissions by 2050 at the latest. These initiatives must all be accredited by the Race to Zero, a global campaign led by UNFCCC – which means using science-based guidelines to reach net zero emissions and setting 2030 interim targets. GFANZ includes 55 banks representing USD37 trillion through the Net Zero Banking Alliance, 128 asset managers representing USD43 trillion through the Net Zero Asset Managers Initiative, and over 40 asset owners representing USD6.6 trillion through the Net Zero Asset Owner Alliance. GFANZ will drive and raise the ambition of the financial sector towards COP26 and beyond.
Through the outcomes of COP26 and the various working groups under GFANZ, financial markets and institutions are expected to improve: Returns – assessing the credibility of transition plans and measuring alignment to net zero; and Mobilisation – increasing financial flows to emerging and developing economies to finance the transition.
Private finance has recognised that it is in a unique position to help support the transition required by facilitating changes in attitudes, consumer preferences and climate policy. Markets can take into account adjustments from the future, share additional risks and ease the adaptation. All forms of finance will be a focus in COP26 presidency, effectively making it a ‘finance’ COP. The focus for the private finance work will be to build the right framework so that the sector can allocate capital to manage climate risks and capture climate opportunities.
The article produced by HSBC Global Research (the link to which is provided below) provides further analyses on the themes discussed above and presents the different outcomes expected from the standing items on the COP agenda.