A stubborn optimist’s view from COP26

The world has been to Glasgow and returned. Almost 200 nations and 120 heads of state attended COP26, but they weren’t alone. Among the 25,000 delegates at the climate change conference was a large contingent of international finance and business leaders. And while governments fumbled over wording in the final Glasgow Climate Pact, those global financiers and industry heads took charge of the climate conversation.

“This was the first COP where government wasn’t the most important party in the room,” says John O’Brien, partner, energy transition and decarbonisation at Deloitte Australia, who has attended several COPs, including Glasgow. “It was finance and business driving the agenda. Government was there, and they were doing things, but it really wasn’t their show.”

Response to the outcomes of COP26 – in particular, the climate pact – has been mixed, but O’Brien has remained a “stubborn optimist”, inspired by the position of the Glasgow Financial Alliance for Net Zero (GFANZ), a consortium of more than 450 financial firms established in the lead-up to the Glasgow conference.

With a stated focus of “broadening, deepening and raising net-zero ambitions across the financial system and demonstrating firms’ collective commitments to supporting companies and countries to achieve the goals of the Paris Agreement”, those 450 GFANZ members are responsible for assets of more than US$130 trillion – money they can use to influence decisions among the industries and businesses to which they lend.

“All of [those institutions] have said they will set 2030 targets on their portfolios,” says O’Brien. “Every dollar of debt and equity that goes out the door will have a target. They haven’t been set, but they will be.

“And they’re actually going to change their portfolios to meet those targets. They’ll stop investing in some things, and they’ll invest more in other things, and they’ll change the cost of capital and make debt more affordable if you’re going to transition.

“That changes the whole financial sector globally; it changes every country, every company. If you’re an oil company looking for debt, or you’re a coal company looking for debt – and they already struggle sometimes to get finance – it’s going to get a lot harder.”

O’Brien says one of the big discussion points in Glasgow was transition – the need to not only finance the clean tech and renewable sectors, but to also help existing industries clean up their act and thrive. GFANZ, for instance, has set a goal to triple decarbonisation investment for 2021–25 compared to 2016–20. The numbers involved are massive, with GFANZ declaring that $32 trillion in decarbonisation investment is needed globally this decade. The greatest chunk of that spending – 42% – would be in the Asia-Pacific region, with up to 70% of the investment potentially coming from private institutions.

“How do we help a chemical plant implement new technology that allows them to lower emissions?” O’Brien asks. “Or how do we enable the steel maker to build the hydrogen-fired plants that enables steel to be made in carbon-neutral fashion? That sort of financing is critical.

“Some of the hard-to-abate sectors around airlines and jet fuel, or steel or cement or chemicals, there’s some really hard things to change there. And that needs finance. Part of that will be around transition bonds, and how you actually finance that transition. That’s where I think there will be more money available over the next few years.”

O’Brien says that even with private institutions potentially financing so much of the transition, the role of governments is no less critical or urgent. Private money doesn’t release public obligation.

“There’s a massive role for government,” he says. “The role of government in my mind is to make it an orderly transition. The transition is going to happen, that’s now inevitable. We will change and we will decarbonise. Government’s role is to make sure it’s equitable, that it’s efficient, and that it’s orderly. That’s what good government should do.

“One of the things that has always frustrated me is when a coal-fired power plant, or a steel mill, or a car factory, closes down, it’s suddenly this, ‘oh, wow, why did we not know this was coming?’

“Well, it was obvious [that it was coming]. It was just the timing that was uncertain – was it going to happen this year, in five years, or in 15 years? The role of government is to have that kind of long-term transition plan going.”

Dr Linden Ashcroft, lecturer in climate science and science communications at the University of Melbourne, agrees that responsibility for tackling climate change needs to be shared – from governments and industries right down to suburbs and individuals – but remains cautious about the business world’s approach to the climate cause.

“What I’m afraid of [is] making sure that the businesses have that goal in mind,” she says. “That as well as looking after their investors and all of those things, it’s making sure that good prevails as well.”

O’Brien believes that climate cynicism within the business and finance sector is disappearing, with most of the financial world aware that what’s best for the planet is now also best for the economy.

“I think historically there has been a lot of, ‘we need to do this, because we need the sustainability report, and it looks nice and fluffy’,” he says.

“But some of my economics colleagues did a report around what happens if we don’t change. Where’s the economy going to go? And actually, if we don’t take climate action, the economy falls off a cliff because we can’t farm anymore, and people can’t work in the heat and [there are] lots of damages, the storms get worse. If you redefine the baseline, then [taking] action is reducing losses, not just being a cost.

“So it is entirely financial and strategic, and of course there will be cynical stuff going on and people greenwashing, but it’s now the CFO and the board and the CEO who are going ‘right, what do we actually need to do, and when, and how, and how big, and how’s that going to impact everything?’

“Rather than the sustainability managers pushing it up the chain going, ‘hey, guys, this might be a good idea’, it’s now the board saying, ‘why haven’t we got a strategy? We want one now’.”

As financial institutions look to shepherd the shift towards net zero emissions, and scientists continue to warn of its dire necessity, could COP26 become the moment when science and business fall into lockstep on climate change?

“Big business will need to find the solutions, and those solutions need to be developed by science,” says Ashcroft. “Those solutions need to be targeted at the places that science tells us the most difference needs to be made, not just in terms of understanding which sectors are contributing the most to greenhouse gas emissions, and which sectors are going to be the lowest hanging fruit, but also geographically.

“Moving forward, the way that climate models and climate projections and the way the atmosphere is represented, is getting so much more high-quality. We’re getting such high-resolution projections of what’s happening, not just at a global level, but at a national level, at a state level, at a city level. And that’s what people want, they want to know what’s going to happen in my town, what’s happening in my street.

“The other source of knowledge that I think we need to include more in this conversation is traditional knowledge. Indigenous Australians were the first scientists here, and they know so much more about this place and this country, and how to take care of it, than we do.”

O’Brien notes that though First Nations peoples from around the world have attended all COPs, the Glasgow Climate Pact was the first such pact to make specific mention of them as stakeholders. “Indigenous peoples and local communities” are mentioned six times in the pact’s pledges.

It’s one of the positive shifts hidden within the climate change reportage, and part of the social science that Ashcroft and O’Brien agree has a large role to play in the journey towards a net zero world. Communication, they say, is key, including between scientists and the business world.

“As someone who teaches climate science and science communication, our motto is that the science isn’t finished until it’s communicated,” Ashcroft says.

O’Brien concludes that beneath all the noise and rancour, there are positives and even hope, and that to help offset the overwhelm of climate change, those messages also need to be well communicated.

“It’s really hard, I think, for the community just to hear the bad news,” he says. “You know, ‘the world’s coming to an end, it’s all terrible’. It’s too hard for most people when they’ve got to get the kids to school and pay the mortgage. So how do we flip the story into something that’s positive and has attraction and is about positive storytelling?

“In some ways, we’ve got all the technology we need, and we’ll get better technology, and it will get cheaper. But we’ve got enough today – we’ve certainly got enough finance to transition the whole world today, if we apply it correctly.

“So for me, the whole challenge is around psychology and communication. One of the fundamental things is, how do we flip this around so that people are seeing it as an opportunity, seeing it as, ‘okay, if we’re changing the whole economy in the next decade, how do we fix up a few of the other problems we’ve got in the economy?’.

“While we’re reducing emissions, how do we make communities more resilient? How do we create more high-value jobs? How do we make people’s lives happier? Because if we’re going to change everything, let’s think a bit more broadly.

“I am entirely a stubborn optimist, because there’s no point not being one.”

To hear more from this conversation with Linden Ashcroft and John O’Brien, watch the Cosmos Briefing or listen to the podcast.