Finance is central to this year’s climate talks. But many of the biggest names in the finance world are reportedly skipping this year’s annual summit in Egypt.
Major banks and asset managers, including BlackRock Inc. and Citigroup Inc., are not planning to send their CEOs to the U.N. climate conference known as COP 27, Bloomberg reported last week. Instead, they’ll be sending senior delegations.
But the absence of those chief executives may matter less at a time when action is more important than pledges, with the focus of this year’s conference on implementation.
“One thing is whether you come to a conference, the other is whether you’re delivering on the commitments that you made,” Alok Sharma, a former British official who headed last year’s climate talks in Glasgow, Scotland, told E&E News.
The Glasgow conference drew hundreds of businesses and investors, and it led to pledges by top-level executives to curb their planet-warming emissions. Many are grouped under the Glasgow Financial Alliance for Net Zero, or GFANZ, an umbrella coalition of financial firms worth roughly $130 trillion in assets co-chaired by former Bank of England governor, Mark Carney.
That money is seen as key to driving the changes needed to prevent climate catastrophe. But investors and the private sector are not part of the formal negotiating process that occurs at the annual climate conferences.
In addition, this November’s negotiations are expected to be more technical. And it likely will focus on issues important to developing economies — such as climate justice and resilience — both of which this year’s host, Egypt, has emphasized.
Another factor is that climate conferences tend to work on five-year cycles, where the most high-profile summits coincide with the years when countries need to bring forward new climate targets, setting off a wave of pledges and splashy announcements to end coal use or deforestation. That is what happened last year in Glasgow.
“Last year was the commitment COP, and this year is the implementation COP,” said Kirsten Snow Spalding, senior program director of Ceres Investor Network, which works with asset managers such as BlackRock. “Top CEOs make commitments and their staff implement. And so, for me, that’s reason enough why we’re seeing a different group of people coming.”
Of course, 2022 isn’t a typical year.
This year’s climate conference is taking place amid recession fears, food and energy shortages and climate-fueled disasters that have showcased the need for action and financial support.
It also kicks off a day before a U.S. election that will determine whether Republicans gain control of the House, Senate or both — a scenario that could add to the headwinds facing investors such as BlackRock.
Republican officials and attorneys general in several states have targeted BlackRock for incorporating environmental, social and governance risks into its investment decisions — policies they say are hostile to oil and gas companies. BlackRock has defended its approach to sustainable investing and said it doesn’t tell companies what or how to meet net-zero targets.
“It’s very clear that they’re really working on their own agenda to address climate change consistent with their own fiduciary duty,” said Spalding.
The combination of a less consequential climate summit with uncertainty on the homefront may be the right mix for chief executives to take a pass on this year’s gathering. But it’s not necessarily a signal that investors and the private sector more broadly are losing interest.
“There’s a number of dynamics that I think it’s important to understand,” said Alden Meyer, a senior associate at the climate think tank E3G. “I think all the indications are they see this as critical to their future not only in terms of complying with what governments are demanding, but what their shareholders, their financial partners, their suppliers and customers and probably most importantly, their employees are demanding.”
‘Show and tell’ time
Much of the discussion in Egypt will focus on what governments have committed to and delivered, as well as the role international financial institutions such as the World Bank have to play in directing finance where it’s needed and leveraging private-sector capital.
That doesn’t mean businesses and investors don’t matter. As finance leaders and climate chiefs like John Kerry often point out: no single government has enough to money to solve the problem.
But waving the flag for net zero isn’t enough, said James Vaccaro, executive director of Climate Safe Lending, a network aimed at decarbonizing the banking sector, and a member of the advisory board to the Glasgow Financial Alliance for Net Zero. “You’ve got to show us what the plan is and how you’re going to do that,” he said.
Progress has been slow.
“Last year it was all about banging the drum for commitment. Now it’s the show and tell, and there is not yet enough show and tell, despite the fact that there are a number of people really working hard within those organizations,” said Vaccaro.
The Glasgow Financial Alliance for Net Zero has faced challenges and pushback for attempting to dictate how the companies that have made a pledge to zero out their emissions go about achieving it. Climate activists have called on GFANZ to set rules that members commit to limiting fossil fuel financing, but the alliance hasn’t done so, saying there is not a one-size-fits-all solution for every firm (Climatewire, April 21). Another criticism of the coalition is that it’s voluntary. And voluntary action alone is never going be enough to force the financial system to shift, said Justin Guay, director of global climate strategy at the Sunrise Project.
“We’re getting some movement, it’s having very real impacts in the real economy, the cost of capital for coal has gone through the roof, because institutional investors are shunning it,” he said. “But you can only go so far before regulators actually need to force their hand.”
That’s where chief executives from big banks and asset managers can have the most impact, said Vaccaro.
“You will hear banks continually saying … ‘Well, we can do all these good things. But we can’t do it on our own without governments giving us the policy frameworks,'” he said.
But Vaccaro added that banks have been relatively quiet about what policies they want to get there — and that’s a problem.
“Banks are not passengers on this journey. They’re pretty bloody influential. Therefore, their silence is deafening,” he said.
Sharma, head of the Glasgow summit, said he’d like to see the businesses that committed to net zero last year follow up with detailed plans for how they’re going to reach that target.
They’re working on them, said Spalding from Ceres. BlackRock and other asset managers have set interim targets and are developing action plans to show how they’ll get there and what progress they’re making, she said.
For Vaccaro, much of that is still more about preparation than action.
But movement is building, said Guay from the Sunrise Project.
“The activity and the commitments from the corporate and the financial sector, in particular, continue to chug along regardless of whether or not these guys show up at international meetings,” he said.
