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COP26 included trillions of dollars in promises. Here’s what’s next

Saturday, November 27th 2021, 12:00 am - Hundreds of financial institutions committed the largest amounts yet to net-zero initiatives, but observers say the lack of details is concerning.

US$130 trillion (CA$163 trillion) — that’s ‘trillion’ with a T.

That’s now the amount of private capital committed by banks and other financial institutions toward net zero initiatives, a milestone announced at this month’s COP26 climate change conference.

The money is being put up by 450 financial institutions across 45 countries, including Canada. All of the country’s big-six banks signed on in October, though they were beaten to the punch by B.C.-based credit union Vancity, which joined in April.

U.N. climate envoy and former Bank of Canada Mark Carney suggested that with these trillions, the world’s financial system now has enough capital committed to making a transition to a 1.5°C world possible.

“To seize this opportunity, companies must deliver robust transition plans and governments set predictable and credible policies,” Carney stated in a release from the Glasgow Financial Alliance for Net Zero (GFANZ), a loose framework for the participating financial institutions. “This will give finance the confidence to invest, pulling forward climate actions and smoothing the transition to net zero, driving growth and jobs upwards, and forcing emissions downwards.”

US$130 trillion is not small change by any means, stated Simon Dyer, the Deputy Executive Director at the Alberta-based Pembina Institute, who was cautiously optimistic to hear of the deal, though with some concerns.

“Considering that before this announcement many businesses in the financial space didn’t have any greenhouse gas performance targets for 2030 or 2050, this commitment — if it’s rigorously implemented — has the potential to be a game-changer,” Dyer told The Weather Network.

However, Dyer stressed that the $130 trillion figure is based largely on currently existing capital, not new funding for new projects. Making sure the money does what it’s supposed to do relies on “rigorous” reporting and accountability measures.

“Now that everyone is back home from COP, public attention should be focused on holding governments and industry accountable on moving to reduce emissions quickly and deeply, and on making sure that banks, insurers, pension funds, asset managers, stock exchanges and so on are delivering on their commitment to finance emissions reductions this decade,” Dyer said.

Eddy Perez, the international climate diplomacy manager for Climate Action Network Canada, said GFANZ is flawed, since their criteria for determining financed emissions are largely left up to individual members.

“The criteria [have] many loopholes including, for example, not mentioning fossil fuels,” he told The Weather Network, adding the participating members don’t oppose the use of carbon offsets, which compensate for emissions, but don’t curb them altogether.

CANADA TO END FUNDING FOR MOST NEW INTERNATIONAL FOSSIL FUEL PROJECTS

Canada also signed on to a statement by more than 30 countries and financial institutions pledging to end all new direct investment in “unabated” fossil fuel projects internationally by the end of 2022 — “unabated” meaning projects whose CO2 emissions are not captured and disposed of.

In the declaration, Canada and the other signatories said that investing in such projects “increasingly entails both social and economic risks, especially through the form of stranded assets, and has ensuing negative impacts on government revenue, local employment, taxpayers, utility ratepayers, and public health.”

Dyer stated that the new pledge should be relatively easy for Canada to enforce, as most direct federal funding of overseas projects is done through Export Development Canada (EDC), a government department.

Dyer did point to one potential wrinkle: a clause in the declaration that would allow fossil fuel funding “in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement.” How governments will interpret that clause, Dyer warned, will be a big question going forward.

“And, of course, this commitment only speaks to subsidies abroad — it doesn’t apply to ongoing domestic subsidies for fossil fuel development,” Dyer added.

Pérez, for his part, said that if the pledge is followed through, it could mean a shift of more than $20 billion out of fossil fuels, and into clean energy — an amount that will rise as more countries sign on.

Pérez did have some other caveats, however: the “unabated” language around fossil fuel emissions opens the door to funding projects equipped with carbon capture infrastructure, technology he said is unproven, and whose use could end up prolonging the use of fossil fuels.

“I think what's more problematic is that Canada doesn't have a similar commitment to domestic fossil fuels subsidies,” he added. “That remains a weakness overall for us because EDC finances the expansion of the fossil fuels industry domestically and internationally.”

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