Show Me The Money: Climate Finance at COP26

Updated: Jan 20

On November 3rd 2021, global finance ministers met to discuss assembling funds for swift and significant action against the climate crisis. Climate finance has become an increasingly hot topic in the run-up to COP26 and indeed, finance was a headline topic of the first week of the conference. Alok Sharma, President of COP26, outlined why this area is so crucial for this particular conference:

“Today, there is more public and private finance for climate action than ever before. But to meet the commitments made in the Paris Agreement and keep 1.5 alive, we need developed countries to deliver on public finance, and to unleash the trillions required in private investment to create a net zero future and protect lives and livelihoods from the devastating effects of climate change.”

For global finance commitments, 100 billion is the magic number. That is the amount of dollars that, in 2010, wealthy nations promised to mobilise each year from 2020 to 2025 to support developing nations with efforts to mitigate and adjust to the impacts of the climate crisis. With the OECD’s prediction last month that this goal is likely to only be met by 2023, all eyes were on political and business leaders this week to release what funds and resources they can to support global efforts to tackle the climate crisis.

The United Nations Framework Convention on Climate Change defines climate finance as “local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.” However, as is the case with the climate crisis itself, climate finance is proving to be a complex and thorny issue.

From new infrastructure for combatting increasing extreme weather events to exchanging coal for ‘clean’ energy, combatting and mitigating the climate crisis is expensive. Additionally, there is significant crossover among those nations with the lowest emissions rates, those most vulnerable to existing damaging effects of the climate crisis, and those with the least funds available to address climate change. Conversely, wealthier nations are among the highest polluters and emissions-generators.

There are also questions of how to support nations whose economies have significant reliance on polluting industries, and whether wealthy nations are working quickly enough to mobilise the financial resources needed for those nations most vulnerable to the effects of the crisis.

Various new pledges and partnerships have been announced that span the spectrum of climate financing and resourcing. These include:

  • Over $130 trillion of private finance committed by the Glasgow Financial Alliance for Net Zero (GFANZ). This "global coalition of leading financial institutions committed to accelerating the decarbonization of the economy", led by UN Special Envoy for Climate Action and Finance Mark Carney, has committed to science-based net zero targets and milestones in the next 12-18 months.

  • £100 million in new funding for the Taskforce on Access to Climate Finance pledged by the UK which co-chairs the taskforce with Fiji. This scheme is intended to help developing nations struggling to access and attract climate investments.

  • $8.5 billion to support South Africa with emissions reductions. This will be made available over the next 3-5 years to support South Africa's ambitious plans given that it is the world’s most carbon-intensive electricity producer.

  • The launch of the Asian Development Bank's Energy Transition Mechanism (ETM). This scheme is expected to raise $2.5 to $3.5 billion to buy up and retiring coal-fired power plants across various Asian nations to reduce coal power and increase clean energy use.

What remains to be seen is how swiftly and effectively these and other climate finance commitments will be deployed in the coming months and years, given that extreme weather events have already become common across the globe, and stark warnings have been issued about how (in)habitable our planet will become. So too are clear commitments, given the increasing attention turned to potential and confirmed cases of greenwashing in the finance world. Talk is cheap—ministers and business leaders will be best remembered if they take urgent, committed action to make a difference.