The Race to Net Zero - things are hotting up

From the 'what' to the 'how'

A global consensus, driven by increasingly frequent catastrophic weather events, has moved the debate.

Interestingly, the term ‘net zero’ wasn't in everyday use at the Paris Climate Accord in 2015, but science has converged around the simple math expressed by Bill Gates in his book, 'How to Avoid A Climate Disaster" – fewer greenhouse gases = less global warming.  Scientists believe that restricting to 1.5 degrees of warming may prevent the worst manufactured disasters looming, but only if Net Zero delivers through clean, sustainable energy, free of greenhouse gases.

Global warming and climate change are inextricably linked, but what actions are needed to avert climate disaster?

The 2015 Paris Climate Conference addressed the prospect of global warming by more than 3 degrees by 2100, compared to pre-industrial levels. The agreement set a clear objective – the ‘what’ - reduce global warming by 2050.

But COP 26 in Glasgow must develop the ‘how’.

The UK (joint Chair with Italy) has put its best foot forward and produced its Path to a Net Zero Strategy by 2050, (with Scotland recently advancing that goal by five years) with a range of targets and specific actions to achieve them – such as converting the country’s entire power supply to green by 2035.

But collaboration, cooperation and commitment will need to be the hallmarks of this summit, if efforts are to be successful, and so the UK is also asking other countries and especially developed nations and the largest emitters, to do the same and to sign up to a number of critical objectives:

1. Secure Global Net Zero by 2050 and keep 1.5 degrees maximum global warming within reach
2. Adapt to protect communities and natural habitat
3. Mobilise finance, raising at least $100bn pa of government funding for climate initiatives and encourage international financial institutions to support private sector investment in the trillions
4. Work together to deliver, by formalising the Paris Agreement and developing the rules that will govern progress, turning ambitions into action

Depending on which side of the argument you fall onto, it's either an ambitious set of goals, or it fails to seize the moment.

One thing is for sure, the countries attending will have plenty of opportunities to report on their progress against the Paris agreement, but they will also be asked to make further public commitments to move towards net zero by 2050.

China and Russia's absence at COP26 will disappoint, but the late arrival of Narendra Modi, the Indian Premier, will give the organisers some cheer. China, the United States, India and Russia are the most significant nation-state emitters of CO2, accounting for 55% of global emissions.

The direction of travel toward the establishment of new international standards is unmissable and the British IFCs will be wise to keep in step.

Thankfully, there are indications of proactivity amongst those IFCs - most have already launched sustainable finance initiatives. In addition, Guernsey has run a Sustainable Finance Week for several years in the Channel Islands, while the Government of Jersey recently hosted an inter-jurisdictional webinar entitled ‘Climate Change and Small Islands’, drawing participants from Bahrain, Antigua and Barbuda, Guernsey, Isle of Man, Madeira and St Helena.

IFCs will need to continue to be on the front foot and evidence their contribution and the fact that many will be attending COP26 either virtually or in-person is a positive step.

The COP26 Presidency, Mark Carney's COP26 Private Finance Hub and the High-Level Climate Action Champions all call for private financial institutions to announce new ambitious actions at COP26. These include joining the Race to Zero and the Glasgow Financial Alliance for Net Zero - GFANZ.

Setting science-based targets for 2025-2030, committing to phase out coal finance, announcing new net-zero adaptation-aligned financing to developing countries and emerging markets, and committing to nature-positive finance action are all also on the menu. IFCs will be wanting to make contributions in these areas.

Given the importance of financial services to many small state economies, the engagement of IFCs and the many firms that operate in and through them is critical in affirming a responsible approach to climate action. No less will be expected by the international investment community.

Mourant has significant experience in supporting climate and other sustainable finance related investment flows. You can find out more here.