OPINION
Protecting the Earth — not the wealth of financial tycoons — at the heart of world’s unprecedented climate commitments


By David Olive

Star Business Columnist
Thu., Nov. 11, 2021

In these last few days of the climate crisis summit in Glasgow, it’s worth asking if this milestone gathering has yielded anything but cynicism.

Significant achievements have been made at the COP26 summit. But as often happens at landmark gatherings of world leaders, protesters denouncing the event as a sham have obscured progress achieved by the delegates.

COP26 has already been dismissed as a bust by cynics demanding a rapid end to fossil-fuel investment and use. That is an impractical goal, of course, given that the world still relies on fossil fuels for about 84 per cent of its energy needs.

Yet COP26 will be remembered for significant achievements.

Many of those are advancements on existing reforms and some are unprecedented.

First, the further progress on earlier reforms.

The work on existing reforms includes tighter coordination among governments, corporations and independent research bodies to better ensure that agreed-upon decarbonization targets are met.

That work tends not to earn headlines, but it is the essence of summitry, which strives to achieve global consensus on proposed and achieved reforms that were developed by a host of reformers between summits.

For instance, financial-markets regulators at COP26, who have long considered climate crisis as the greatest threat to the global financial system and thus to the world economy, have been pitching “stress tests” for financial institutions.

The tests would determine if banks, insurers, pension funds and other financial asset managers have adequate capital to cushion the blow to their investment portfolios from devastating damage caused by global warming.

That type of precautionary planning was successfully used in the early 2010s to prevent a recurrence of the catastrophic Wall Street meltdown of 2009 that put tens of millions of people out of work in North America and Europe in the resulting Great Recession.

The tests are not a limited exercise in protecting the wealth of financial tycoons, as the cynics have described it. They are aimed at preserving the vast portion of the world’s financial assets held by pension plans like the Canada Pension Plan Investment Board and its hundreds of counterparts worldwide.

Another overarching topic at COP26 has been guarding against “greenwashing,” when enterprises aren’t sincere in their stated goals of reducing their carbon footprint.

That is best achieved with new, demanding standards of greenhouse gas emissions (GHG) reporting that are more consistent and comparable than the markedly different ways in which environment, social and governance (ESG) performance is measured among reporting institutions today.


In the years since the Paris climate accords of 2015, proposed rigorous reporting standards have been developed among regulators and groups advocating for greater corporate and government transparency.

Among those are new sets of strict disclosure standards proposed separately by the U.S. Securities and Exchange Commission (SEC) and the International Financial Reporting Standards agency, which oversees accounting in most parts of the world.

Canadian investors in the multitrillion-dollar market for ESG products today cannot be certain that they are comparing apples and apples in making investment decisions. Delegates at COP26 have begun the process of knitting those many proposed best-disclosure rules into a global standard.

That initiative is long overdue. Antonio Guterres, the UN secretary-general, has warned of the current “deficit of credibility and a surplus of confusion over emissions reductions and net zero targets, with different meanings and metrics.”

Jane Fraser, CEO of banking giant Citigroup Inc., told the COP26 summit that agreement on consistent sustainability standards “will make it much easier” for the bank’s investing clients to commit to green projects.

That “gold standard” on environmental performance reporting, as the COP26 delegates describe the goal they seek, would also prevent reported climate data from running afoul of traditional financial accounting rules.

To this point, the candour of reporting institutions has been constrained by worries about the legal and regulatory liabilities to which they might be exposing themselves with full disclosure.

Important as that work is, COP26 will be best remembered for its unprecedented advances.

For instance, Canada and about two dozen other countries have committed to ending government financing of fossil fuel projects abroad in 2022. Not by 2030, but by the end of next year.

At COP26, the U.S. and Britain have sponsored a new fund to raise $500 million a year from the global private sector to finance the transition to clean energy worldwide. Additional governments are expected to sponsor similar funds, as the profit potential from clean tech becomes clearer.

The challenge now is to co-ordinate the clean-tech funds to guard against duplication of effort.

There is a need for specialized funds that finance promising clean-tech startups, and others that invest in commercializing university research.

Other funds will invest in projects by which low-income countries can transition to clean energy and build infrastructure that protects against climate-crisis risks.

One of the boldest COP26 initiatives is a new coalition to fight climate change consisting of 450 banks, insurers, pension funds and asset managers with combined assets of $130 trillion (U.S.), or about 40 per cent of the world’s financial assets.

The coalition, called the Glasgow Financial Alliance for Net Zero (GFANZ), says it is prepared to finance about $100 trillion (U.S.) worth of clean energy projects over the next three decades.

That’s about two-thirds of the estimated total cost of $150 trillion (U.S.) to keep the average world temperature from rising more than 1.5 degrees Celsius.

GFANZ was unveiled at COP26 on Nov. 3 by Mark Carney, the UN climate envoy, and former head of the central banks of Canada and the U.K.

GFANZ is one of the largest pools of capital ever committed to a single purpose. Carney, who assembled the coalition, will continue to recruit more signatories. In his view, cash-strapped governments can’t finance the clean-energy revolution.

Carney vows to “ruthlessly, relentlessly” monitor coalition members for adherence to their pledges. Coalition members include financial behemoths Citigroup Inc., BlackRock Inc. and Allianz SE. Among the members of the coalition’s Canadian contingent are Canada’s Big Six banks and Vancouver City Savings Credit Union (Vancity).

“The money is here,” Carney told the COP26 summit, striking an optimistic note. “But that money needs net zero-aligned projects and (then) there’s a way to turn this into a very, very powerful virtuous circle.”

COP26 has revealed that there is more private-sector money than previously thought to supercharge the shift to clean energy. And also, that there aren’t enough green technologies, projects and companies in which to invest.

That could change if entrepreneurs and engineers can be freed up from developing the latest slightly improved smartphones, from the untested virtues of exploring the “metaverse,” and from space tourism to meet life-and-death challenges here on Earth.

We can only hope.