COP27: Get finance flowing in the right direction so business can cut emissions fasterMaría Mendiluce, CEO, We Mean Business Coalition
So far, COP27 has been dominated by conversations about finance, and loss and damage. Will the promised $100 billion per year be delivered by wealthier countries to enable developing countries to cut emissions and adapt to climate impacts?
As the voice of progressive business, We Mean Business Coalition is calling on governments to urgently deliver on the $100 billion commitment and make progress on post-2025 climate finance plans. Doing this will build trust between countries and address escalating climate impacts.
We welcome the addition of loss and damage to the COP27 agenda. Loss and damage relates to climate-related impacts which cannot be adapted to. Loss and damage is happening because we have not adequately tackled climate change, cut emissions or taken action to adapt. And loss and damage disproportionately affects vulnerable populations and those who have contributed least to the problem. I hope that leaders will recognize their responsibility to mobilize finance and technical assistance.
While these critical COP27 discussions take place about public finance, huge sums will be invested in capital markets – this represents pensions, jobs, and funding for infrastructure and innovation. As an example of the scale we are talking about, the Glasgow Financial Alliance for Net Zero (GFANZ), the world’s largest coalition of financial institutions committed to net zero, represents over $130 trillion of private capital.
Negotiations at Sharm el-Sheikh and beyond have to encourage private finance and business decision-making to align with limiting global temperature rise to 1.5°C.
A starting point is to give coherent pricing signals to the market. Reforming fossil fuel subsidies and putting a meaningful price on carbon are two critical actions which will start to shift the market to choose low carbon options.
Innovative thinking that develops new models of cooperation can also effectively channel private finance to the places it is most needed. For example, Just Energy Transition Partnerships can prioritize emissions reductions and equity – and provide funding mechanisms – if they are designed in a way that does not worsen national debt.
Governments can also help drive investment into the most sustainable companies by mandating transparent and comparable reporting standards.
Sustainability reporting provides the information the markets need to make good investments, finance the transition and track progress. This means disclosing opportunities and risks. Will a company’s investment take it a step closer towards a net zero world, or will it be a stranded asset tomorrow? What are the barriers to action? These disclosures can help identify policy, incentives and tools that close the gap between corporate ambition and action.
Reporting must be comparable to allow the identification of the most sustainable companies. Comparability minimizes opportunities for greenwash, provides the clearest picture to investors looking for the world’s most sustainable companies, and delivers the accountability that is essential to drive further progress.
There has been significant development on reporting standards since COP26. The International Sustainability Standards Board (ISSB), which was established at the Glasgow summit, has now released draft standards. Meanwhile, the US and EU have both taken significant steps towards mandating climate reporting.
Business groups have welcomed the US and EU proposals and called for them to align with ISSB standards as the global baseline. This convergence of the various standard-setters is fundamental for wide adoption by business and investors. Without this, there is an additional burden on companies and it’s harder for investors to accurately compare companies across jurisdictions.
Over the coming days, progressive business will be looking to governments to mobilize public finance for developing countries. At the same time, we need governments to put in place the right financial frameworks to direct even more funding towards business action to cut emissions and adapt to a changing world. With the right pricing signals, innovative financial mechanisms and comparable reporting standards, we can get even more finance flowing in the right direction.
For more discussion of how to accelerate the transition to a net zero economy, join the COP27 Business Pavilion in person or via livestream, November 8-17, 2022.