Gail Hurley: Glasgow pivotal to building a finance system to slow climate change
This year’s UN Climate Change Conference in Madrid has wrapped up, and all eyes will now focus on Scotland as next year’s host of what is arguably the world’s most important international conference.
The COP26 climate change conference will mark five years since the historic Paris Climate Agreement, which committed countries to strengthening actions to combat climate change and limit the global temperature rise this century to below 2 degrees Celsius. We know, however, that the world is not on track to cut carbon emissions, which must be halved from today’s levels to restrain temperature increases to just 1.5 degrees Celsius, the upper limit advised by climate scientists. Progress will need to be ratcheted up by next year.
The spotlight is expected to shine on the thorny issue of how to pay for climate damage, and how to mobilise the trillions needed for international climate financing programmes.
Financing needed to tackle the climate crisis is estimated to add up to trillions worldwide, and is especially high in the poorest countries and those particularly vulnerable to climate change, such as small island states. The UN estimates a $3 trillion annual shortfall in investments needed to meet internationally agreed climate and sustainable development goals.
A decade ago, industrialised countries pledged to jointly mobilise $100 billion annually in climate finance by 2020 to address their needs. Yet only $71bn was raised in 2017, mostly from public sector aid budgets (and with most provided as loans). There is a consensus that more resources need to be mobilised from private markets for climate-friendly investments and to support a “just transition” to net-zero.
This is where our work to promote Scotland as a leading international centre for ethical and responsible finance comes in. The climate emergency has underscored the urgency of building a financial system that has better outcomes for people and planet at its heart. The work at the Global Ethical Finance Initiative (GEFI), headquartered in Edinburgh, builds on Scotland’s proud heritage in ethical finance and financial services, to convene the world’s foremost political, business and civic leaders to define and shape the transition to a sustainable financial system.
Within the financial services sector, interest has increased significantly over recent years in the ways it can look beyond short-term profit and shareholder value towards how it can drive positive social, economic and environmental impact. This has led to a plethora of new initiatives and financial products, such as ethical investment funds, sustainability bonds (where the proceeds are exclusively applied to finance green or social projects), and the development of UN-led Principles for Responsible Investment. Globally, the impact investment market is increasingly popular and is now estimated at over $502bn (impact investments are those that seek a positive social and environmental impact in addition to a financial return).
At this year’s climate conference, the European Union unveiled its “Green New Deal” intended to transform Europe’s economy and eliminate its contributions to climate change by 2050. Scotland is even more ambitious: this year it adopted landmark legislation to become a net zero society by 2045, and to reduce emissions by 75 per cent by 2030. Delivering a green transformation that will support employment creation, build skills, boost wages and trigger technological advances will require building a new generation of infrastructure and industries. In addition to well-planned public expenditure that can crowd-in private investment, banks will need to ensure they are able to provide the kinds of financing needed to support this transformation. Aligning their business strategies with society’s goals will in turn help them leverage new business opportunities and remain competitive with the emergence of the sustainable development economy.
Finance can be a positive force for change. As we enter a “decade of action” on climate and sustainable development, COP26 in Glasgow in 2020 provides an opportunity for Scotland to showcase its important work to accelerate the transformation towards a socially responsible and inclusive financial system – one that serves both people and planet.
Gail Hurley is Senior Consultant, Global Ethical Finance Initiative, and former senior adviser to the UN