Investment COP: Mobilising finance for ‘total net-zero’ before 2030

Panel discussed collaboration and ways to meet 2030 decarbonisation targets

COP28 “feels like the end of the beginning” of the global transition to net-zero by 2050, with technical and financial pathways coming into focus, but action is needed now to ensure 2030 targets are hit, according to panellists wrapping up the first day of the World Climate Summit’s Investment COP.

At a session titled Six Years to Succeed: Advancing Policy, Innovation and Investments to Meet 2030 Targets, leaders from across financial, industrial and energy sectors identified actions and strategies they are delivering to accelerate climate action to transform the real economy across key drivers, such as policy, technology, innovation and finance.

Here, ESG Clarity rounds up some of the key discussions:

Facilitating collaboration

According to Nili Gilbert, vice chairwoman of Carbon Direct and chair of the Global Financial Alliance for Net Zero (GFANZ) advisory panel, the focus should not just be on deep balance sheet decarbonisation, but figuring out how finance can be a principal lever for decarbonisation in the real economy.

“At Carbon Direct, we’re working with corporations and governments on their journeys to be able to do this. What I think we need to do to be able to address and tackle these problems by 2030, at the pace that is required, is focus on interdisciplinary, multilateral efforts, with the whole of society sitting around the table, figuring out how to unstick the places that are stuck.

“Of course, we need finance, and we find it extremely valuable to sit with our team of scientists and technologists to understand the solutions the investors are trying to underwrite. We also need policy to move to be able to provide the broad economic changes the private sector is now too often trying to lean into alone. And we need civil society, as well as the NGOs who have been leading in this space for a very long time.”

For Rhian-Mari Thomas, CEO at the Green Finance Institute, the development of institutional architecture to facilitate the collaborations necessary to bring these key drivers together is crucial. “None of this works if it’s just a side-of-the-desk effort, or if people are only giving a little bit of time to opine or advise. It only works when people wake up every day and it’s their job to work on both sides of the term sheet because, for all the smart ideas and the great coalitions we’re bringing together, we still haven’t figured out a way of doing finance that doesn’t involve money moving between two counterparties. And so, there is a big execution gap between commitment of capital by lots of different nation states and actors, and the reality on the ground.”

Opportunity in hard-to-abate sectors

According to Gilbert, the historic trajectory of climate finance has been on financing pure green assets, such as wind and solar power. But, while we may have finally found our way to the beginning of an exponential growth period in clean energy solutions, Gilbert also noted the picture is moving toward “total net-zero” by looking across the whole economy from a decarbonisation perspective.

“Coming into focus now are the hard-to-abate sectors, and industrial decarbonisation. This means heavy industry, heavy transport and energy systems to support their decarbonisation, much of which simply cannot be electrified,” said Gilbert.

“When you think about these industries, it’s important that we focus on them in the next six years, because they make up over 30% of global emissions, consuming about 40% of fossil fuels globally, and they’re hard to abate. So, when you imagine the path ahead, if we continue to abate the things that are easier to manage and electrify, their emissions go down, but the remaining share of hard-to-abate emissions goes up, with the IPCC estimating that if we continue as things are, emissions from hard-to-abate sectors will rise by 30% by 2050.”

Definitions matter

Panellists also showed concern about the broad application of the term ‘transition finance’, with Thomas warning definitions matter if we’re going to avoid transition finance becoming “the next frontier of greenwashing“.

“At the moment, transition finance conflates both the development and scaling of climate solutions, while also covering the provision of finance to assets and companies that are already aligned to a 1.5 degrees pathway, all of which has historically been known as ‘green finance’. But increasingly, it’s also being used to describe providing finance to assets or companies that are committed to a transition, but who are not yet on that journey – an absolutely valid category – and about the accelerated and managed phase out of high-emitting physical assets. I don’t think that last category should be classed as ‘transition finance’, it should be classed as ‘decommissioning finance’.”

Financial professionals ‘bring discipline’

Concluding the session, Thomas said she was “pretty optimistic” about the future, and that financial professionals have the skill sets needed to bring discipline to political discussions and drive positive momentum for the transition to a greener economic model.

“When people look at some of these grand pledges at COP28, they sometimes forget about the need to work from the bottom up, and to ask questions like ‘what are the investment plans by sector?’, ‘what is the appropriate sharing of risk?’ and ‘who should be taking each bit of risk along that whole value pathway?’

“We [financial professionals] already know how to bring multiple stakeholders around the table to understand what their requirements are, because that’s a standard way of structuring any financial deal and working towards an outcome. That’s why I’m so excited to see that there are more finance CEOs and executives at this COP than we’ve ever seen before.”