UN Secretary General, Ban Ki Moon, will host the Climate Summit in New York on 23 September, bringing together more than 100 heads of state, along with chief executives, city mayors, and civil society and labour leaders, to spur renewed efforts on climate change. The summit aims to underscore not just the urgency of low-carbon, resilient development, but also that acting on climate can advance the direct interests of nations, businesses and communities.
Four drivers give meaning to this message. First, the costs of clean, climate-friendly solutions – notably renewable energies – continue to fall as technology improves and business models sharpen. The age-old argument that a green future involves additional expense is giving way to the realisation that a full life-cycle analysis often reveals superior net returns, even when there are higher upfront investments.
Second, national and sub-national policy action is accelerating, crucially in China and the USA, fusing the climate agenda with one geared to human health, energy security and technology innovation, focusing for China in particular on reducing air pollution and water stress.
Third, citizens are mobilising and will be on the streets of New York the weekend before the summit at the People’s Climate March – with a refreshed narrative that communicates the often complex climate agenda in popular ways, whether in terms of giant ‘carbon bubbles’, rising inequality or stagnant economies.
And fourth, finance is moving, although still hesitantly, often led by the world’s policy-guided banks. Stewards of some of the trillions of private dollars, yuan and euro that lie within the global financial system are readying for the shift that lies ahead, as evidenced by the still small but rapidly growing green bond market.
Financing climate action can in large part be driven by the direct interests of national, business and individuals.
Two high-profile initiatives provide compelling support to this central message. Risky Business was launched earlier this year by co-chairs Michael Bloomberg, Henry Paulson, former US treasury secretary, and renowned financier, Tom Steyer, a formidable team whose message to the US was that addressing climate made sense by any measure.
The second initiative is the Global Commission on the New Climate Economy, due to present its report ahead of the summit. Chaired by ex-president of Mexico, Felipe Calderon, it was commissioned by seven countries – Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden and the United Kingdom – and is likely to stress the positive economics of taking climate into account in investment decisions.
The summit will not, however, just be positive “show and tell” news. The scale and speed of the required shift in policy, finance and behaviour means that it will also be a “show and stretch” event. The assembled leaders need to go beyond their comfort zones and commit to the targets that are required to put the global economy on course for keeping global warming below 2C.
The underlying trends in carbon pollution and resource use are still driving us remorselessly towards a painful crash, as a recent reassessment of the original 1972 Limits to Growth study has highlighted. And for the leaders of the world’s small island developing states meeting in Samoa earlier this month confronting climate is now a matter of national survival.
The key for the leaders is to put in place the signals and incentives that corporations and investors really believe so that capital is redirected ahead of time and market volatility minimised. With the global financial crisis still resonating across the world, the key for the guardians of the world’s financial system is to avoid disorderly markets and engineer as smooth a path as possible to the coming phase of economic development.
This task lies at the heart of the UNEP Inquiry. Positively, its initial six months of work has revealed signs of a new era of green financial regulation. In Brazil, the Central Bank’s new resolution requiring banks to have environmental and social risk systems in place is regarded by the financial sector as a necessary stepping stone to mobilising capital for the country’s urgent needs for green infrastructure and sustainable agriculture.
In China, the growing focus on how to green its financial market development has led the central bank, the People’s Bank of China, to launch a working group co-convened with the Inquiry to look at areas where financial policy, regulation and standards might catalyse green finance. And in the UK, the latest Law Commission review on fiduciary duty has helped dispel the old myth that taking action on sustainability was at odds with prudent investing.
These positive signs remain, however, at the margin of the still dominant view of the role of, and practices in financial markets. Such markets should respond dynamically and creatively to the new reality about climate change and recognise the value of natural capital. Yet in the main, they don’t, preferring to continue investing in tried and tested high carbon, resource intensive assets.
The scourge of short-termism – exemplified by high-frequency trading – is a contributing factor. In the UK, this was dissected by the Kay Review, but has still not been rooted out of the system despite policy moves, legal challenges and initiatives such as the new IEX stock exchange designed to prevent front-running by high speed traders.
The summit’s message of “show and stretch” will help to address inertia in policies and markets. The financial sector’s creative impulses will rightly be celebrated and encouraged, within a wider recognition that they need to be channeled through policies, regulations and standards to be aligned with the long-term needs of a sustainable economy.
In the matter of finance, our ambition has to rise beyond pricing carbon and the smart use of public finance. Both are essential – but will need to be complemented with measures to overcome the bottlenecks currently embedded in financial markets. A blend of national self-interest and collaborative action is required, only this time involving central banks, financial ministries and regulators, working with banks, investors and insurers, to ensure that the world’s ample savings are deployed safely and securely in the industries of the future.
This article was originally posted in The Guardian Finance Hub.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.