Last reviewed 10 September 2021

The love of money may be the root of all evil. But a shortage of hard-cash could jeopardise the world’s low-carbon transition. Complex summer talks since the G7 leaders’ late spring meeting in the Cornwall have left many issues unresolved — with little time left to go. Jon Herbert reports.

When heads of state from seven of the world’s most economically powerful nations met at picturesque Carbis Bay in June they fired the 2021 starting pistol in a race to source the green finance needed to cool down a warming world.

A powerful home strait finish is now vital in the run-up to the world’s pivotal UN COP26 197-nation climate conference in Scotland. But with progress slow, success could be down to the wire!

Poorer countries will be under intense pressure to make costly low-carbon commitments with the help of financial support mooted, but not yet firmly promised or delivered, by richer nations.

This means that the key question for many will be “where’s the money?”. The global purse-strings have not so far been as generous as they will eventually need to be to meet enormous global targets.

Essential check-list

Reducing greenhouse gas (GHG) emissions to net-zero by 2050 is still the key target.

But there are other important goals. They include protecting nature, biodiversity, ecosystems and landscapes, while also tackling the global waste crisis — including plastics — via the circular economy.

Low-carbon energy, heavy-industry and built environment systems are also needed, with major investments in technology and infrastructure, an area where the UK could export its offshore wind expertise.

There are also programmes for specific sectors like agriculture, steel, cement and transport, plus priorities to double the efficiency of lighting, cooling, refrigeration and motor systems sold globally by 2030.

Reassuring words — but a bad end-of-term report

In a final June G7 communique, UK, Canada, France, Germany, Italy, Japan, the US, plus the EU agreed to “Build Back Better for the World” in a goal described as a green version of the post-WWII Marshall Plan. But green groups and activists are disappointed that this is still just “a plan to make a plan”.

In July, members of the G20 Sustainability Finance Working Group looked at ways of aligning investments with sustainability goals and enhancing the role of international financial institutions to support the of goals of the 2015 COP21 Paris agreement and Agenda 30 (Transforming Our World: The 2030 Agenda for Sustainable Development).

They also examined the G20 Sustainable Finance Roadmap that will go to ministers and governors ahead of another G20 summit in October just before COP26. There has also been input from the International Conference in Climate Change which met in Venice in July.

Show us the money

The urgency of “finance” has been noted in the “mobilise finance” goal of COP26 (ukcop26.org/cop26-goals/finance/) which states that to: “To achieve our climate goals, every company, every financial firm, every bank, insurer and investor will need to change”.

In fact, finance is one of the conferences four key objectives (ukcop26.org/cop26-goals/).

Overall, developed nations have been criticised for reconfirming their goal of keeping temperature rises down to 1.5°C, plus agreeing to protect and restore 30% of the natural world by 2030, but not providing the funding developing countries need to decarbonise and reach these lofty goals.

Although it published a delayed hydrogen strategy in August (www.gov.uk/government/publications/uk-hydrogen-strategy), the UK specifically is being pushed to produce a full roadmap showing how net-zero emissions will be achieved by 2050; the G7 has promised “concrete pathways” to a global net-zero transition.

But in the UK and globally, time is running out.

Follow the green money

Green finance is said to be simply finance that involves a house, car, company or power plant which is green. Typically, it includes loans, debt mechanisms and investments to encourage green project development, or minimise the climate impacts of ordinary projects.

Its potential has been highlighted by COP26 president-designate Alok Sharma who cited opportunities for climate-smart investments worth nearly $23 trillion between 2021 and 2030 in developing nations and emerging markets.

Under the Paris climate agreement, developed nations should provide $100 billion green finance annually. But funding is often given in repayable loans — not grants — which defeats the original aim.

However, the Net Zero Asset Managers Institute (www.netzeroassetmanagers.org/) launched in December 2020 with 128 signatories wants its members who represent $37 trillion to commit to net-zero financial emissions by 2050, or sooner.

Access to funding

In fact, green finance globally is booming and is seen as a way of meeting the needs of environmentalism and capitalism simultaneously. The value of green bond market is set to reach $2.36 trillion by 2023, according to the World Economic Forum. The European Central Bank is heavily involved, although the top three green bonds issuers are the US, China and France.

The UK’s Green Finance Strategy was launched in 2019 to support sustainable and balanced growth, deliver the Government’s Industrial Strategy, and meet international environmental commitments. It has evolved significantly since.

The March 2021 Budget unveiled plans for a new UK National Infrastructure Bank based in Leeds and London to replace access to the European Investment Bank with £12 billion of Treasury money, £10 billion in Government guarantees, and the potential for £40 billion in private finance.

Another helpful organisation on “the environmental impacts, technologies and global markets that underpin green asset classes” is The Carbon Trust which as “independent experts” is able to leverage its “bottom-up understanding to create bespoke solutions and help financial institutions deliver genuinely green outcomes” (www.carbontrust.com/what-we-do/green-finance).

Meanwhile, competitions during 2021 will be launched for the £1 billion Net Zero Innovation Portfolio providing funding for low-carbon technologies and systems (www.gov.uk/government/collections/net-zero-innovation-portfolio).

In February 2021, the UK also launched the Oxford-led Centre for Greening Finance and Investment research hub to advise leaders, investors and insurers; it began work in April 2021 (www.ox.ac.uk/news/2021-02-15-uk-launches-new-oxford-led-research-centre-accelerate-greening-global-financial).

Financial disclosures

Another priority is for business organisations to improve their climate-related financial disclosures.

The Government may make it a UK legal requirement for private companies to show their climate-related business risks in line with Task Force on Climate-related Financial Disclosures (TCFD) (www.fsb-tcfd.org/).

If TCFD comes into force in 2022 to give financial markets and investors clear information on how larger firms manage climate change risks, it will cover pension schemes, life insurance providers and asset managers. Even the People’s Bank of China could soon introduce disclosure measures!

Preserving the value of nature

G7 finance ministers also agreed an ambitious agenda for COP15 UN Convention on Biological Diversity (www.cbd.int/) in China which has been rescheduled for a third time into an online procedural forum in October 2021 and a full in-person gathering in April-May 2022. The Chancellor wants international transparency to tackle illicit finance from illegal wildlife trade.

As many nations, including the UK, are accused of missing their targets, the Environmental Audit Committee (EAC) has also published a report on spending to protect and improve biodiversity and eco-systems (committees.parliament.uk/committee/62/environmental-audit-committee/news/139275/eac-calls-for-climate-and-nature-investment-to-be-prioritised-in-the-economic-recovery/).

According to another report, only 3% of global ecosystems remain intact (www.frontiersin.org). The World Economic Forum adds that $44 trillion of global GDP is vulnerable to nature loss risks (www.weforum.org/reports/new-nature-economy-report-ii-the-future-of-nature-and-business).

Sixth Carbon Budget

The Climate Change Committee (CCC) is advising the Government on the Sixth Carbon Budget. It says UK green funding from the public and private sectors plus individuals must rise from £10 billion in 2019 to £50 billion annually by 2030 — and stay at that level for three decades.

In a 500-page report it has warned that the cost of financing this investment could be £3 billion to £17 billion annually, but added that by the mid-2040s, capital expenditure will be eclipsed by operational savings in warmer homes, cleaner air, and heathier lifestyles.

One challenge will be to encourage the public to bear most of the retrofitting costs of the estimated £12,000 to £15,000 per household, an issue the Budget didn’t mention the Institute for Government notes. Some 600,000 heat pumps could be installed by 2028.

To date, decarbonising the UK energy system at a cost of £10 billion in 2020/2021 has been largely funded through consumer electricity bills. However, PwC estimates that £400 billion in green infrastructure investment will be needed to meet net-zero.