What is 'climate finance' and how can the financial sector mitigate and adapt to the climate crisis?
Written by Rio ESG
The COP26, officially the 26th Conference of the Parties, will take place in Glasgow from the 31st of October to the 12th of November 2021. The 197 parties to the UNFCCC (United Nation’s Framework Convention on Climate Change) will meet to accelerate the progress on the goals of the 2015 Paris Agreement. COP26 will focus on four main goals:
- Secure global Net Zero by mid-century and keep 1.5 degrees within reach
- Adapt to protect communities and natural habitats
- Mobilise finance
- Cooperate to deliver such improvements.
Climate Finance: what is it, and why is it central to COP26?
All local, national, and trans-national financial instruments that act towards climate change mitigation and adaptation fall under the category of ‘climate finance’. COP26 recognises that fast and effective change cannot be achieved unless effective climate finance is involved, with the financial sector mobilised to achieve our climate goals. Importantly, this must include both public and private forms of finance, to develop the necessary transitional infrastructure, invest in new, clean technologies and to transition to a low carbon economy.
Crucially, climate finance also considers the disproportionate responsibility for climate change held by developed countries. For this reason, at least $100 billion per year must be invested by the Global North in service of sustainable transitions within the Global South. For example, the UK has committed to help develop $11.6 billion by 2025/26.
Climate finance has been facilitated and encouraged by the UNFCCC, which established mechanisms and entities to provide trusted financial resources to achieve environmental objectives. Among these, the Standing Committee on Finance (SCF) is specifically responsible for assisting the COP in delivering adequate climate change financing, rationalising the UNFCCC climate finance system, and mobilising financial resources.
The Evolution and Current State of Climate Finance
In the past five-to-ten years, climate finance has evolved and expanded within both the public and private sectors. Historically, environmental issues were mainly held in the domain of the public sector, classified as a public good. However, climate change is an increasingly urgent threat and crisis. Necessitating the integration of governmental action with that of private parties. To do so, it is key that cooperation is improved between public and private sectors (co-operation also being the fourth goal listed for COP26).
But how exactly can financial systems mitigate and adapt to the impacts of climate change?
- Public and Private institutions: Include climate-related considerations in all private and public spending decisions, ensuring finance projects bring environmental benefits alongside socio-economic ones.
- Companies: Transparently disclosing business risks and opportunities caused by climate change and committing to net zero.
- Central Banks and Institutions: Support the transition to Net Zero, while ensuring that financial systems are resilient to the impacts of climate change.
- Private Banks, Financial Firms, and Investors: Investing in companies and funds that are committed to the transition to Net Zero.
The role of companies like Rio in achieving Net Zero goals for companies
Navigating this critical path to Net Zero is important to get right. Aligning with climate science and defining what Net Zero means for your organisation can often be daunting and you might not know where to start.
At Rio ESG, we believe that Net Zero strategies, carbon reporting, and target setting needs to be as straightforward as possible. That’s why we work to democratise the process through our intelligent, accessible sustainability software and free resources like this guide.
We look forward to positive outcomes for achieving the goals of COP26 and laying the foundations to meet the critical milestones of halving global emissions by 2030 and achieving Net Zero by 2050.