Five reasons to be positive after Glasgow

Getting discouraged is easy. When you read the reports from organizations such as the IPPC, IEA and the media, you soon realize that we are up against it in the fight against climate change. We have been slow to act since Al Gore's Inconvenient Truth and the Stern report sparked our collective awareness of the climate problem in the year 2006. (See this rather alarming graph which makes the point well.)

However, there are also genuine reasons to be optimistic now:

?1.?????Today we fret that we might not reach the goal of keeping global warming to 1.5 degrees above the pre-industrial average. But remember, the 1.5-degree limit was not on our radar until 2015. Even then, in Paris, it was agreed that we should aim to stay below 2 degrees. Additionally, policymakers inserted a wish to stay below 1.5 degrees, which is kind of like a stretch goal. But what a difference that has made. More than 90 models have been published since then showing different pathways to achieving that 1.5 degree goal, igniting imaginations, driving government and private sector plans, and boosting investment. With 1.5 degrees stretch goal in place, things have begun moving on several fronts.

?2.?????In fact, Paris was significant for another reason that we are only now beginning to understand in Glasgow. COP works by way of government treaties. And at Paris, governments agreed that every country would make a "national pledge" as to what they would do to contribute to meeting the 2 degree goal. With no real sanctions in place, countries could make fuzzy promises with little detail. But every country that signed up had to make a pledge. In COP speak, these are called NDC's (nationally determined contributions). You might have read a lot about the fact that some countries have not pledged to get to net zero by 2050. You might have read that the pledges we have received are insufficient (they put us a on course for 2.1 to 2.4 degrees) and our current trajectory is heading somewhere between 2.7 to 3 degrees. To add insult to injury, you may have also read that policy action on the existing pledges has been lacking.?

But here is another way to look at it. First off, 179 countries have sent delegations to COP. That's nearly every country in the world. From nowhere, more than 80% of the world economy is suddenly covered by pledges, many made for the first time or made more ambitious in the last few months or weeks. Moreover the policy action we have seen, although not nearly enough, is also not to be scoffed at. This graph is a good antidote to the one at the top. It brings home that although we have a lot to do, we have come some way from pre-Paris when we were heading for a catastrophic 3.6 to 4.2 degrees.?

What caused this to happen? Peer pressure. In terms of the Paris agreement, governments must make their commitments in public, and they are reviewed periodically. Add domestic political pressure and global public opinion, and this pledge procedure have had a surprisingly positive ratchet effect on pledges and action.

3.?????Renewable energy will account for the largest portion of energy generation investment globally. One of the main reasons for this is capital markets, which are already primed to deliver 1.5 degrees. Carbon pricing has been talked about a lot, but capital markets already price carbon in. How do we know this? A few years ago, it cost the same to borrow money to finance an oil project or a solar farm—roughly 10%. Today, estimates of the cost of capital for investment in an oil project can be as much as 20%, while for renewables, it is between 3 and 5%.

(With me in the picture Jane Fraser, Shemara Wikramanayake, Alison Rose and Anne Richards)

?4.?????One of the things that I am particularly proud to be a part of at this COP is the Glasgow Financial Alliance for Net Zero, or GFANZ for short. As a group of financial institutions with existing assets over $130 trillion, we are committed to the Paris goals. And as a group, we will be able to generate $100 trillion in the years leading up to 2050 to fund investments in new technologies and have a global reach enough to create pathways for our customers, large corporations and small SMEs to reduce their carbon footprint.

Not everybody feels that way. I’d be remiss not to mention that in COP this week there has been protest action aimed at banks. Santander was specifically targeted in some of them. I understand the mistrust that many in society still have of banks. But judge us on our actions leading up 2030, and our actions the last few years. By?2030, Santander will have stopped providing financial services to power generation clients with more than 10% of revenues dependent on thermal coal. By 2030 the bank will eliminate all exposure to thermal coal mining worldwide.

Meanwhile, in 2020 we financed enough greenfield, renewable energy projects to power 10.3 million households. That’s roughly three times the number of homes in London.

So GFANZ represent a radical shift in thinking at most global financial institutions. ?As the Wall Street Journal highlighted this week, when world leaders gathered in Paris six years ago, financial institutions and banks were not even a part of the conversation. It took several years for a single asset manager or bank to commit to the Paris agreement, and only in the last couple of years did it become widespread. In 2020, the sum total of financial capital committed to achieving net-zero emissions was $5 trillion, compared to the $130 trillion pledged in Glasgow this week. (Do check if your bank are a member of GFANZ, and if not, ask them why.)

5.?????Then there is the bigger, long term picture. Larry Fink, CEO of Blackrock, the world’s largest asset manager said in Glasgow that what is being attempted is unprecedented.??Overall, the investment we need is in the low single-digit trillions, which is a lot. At it's peak in the mid 2030s, this would be around 2.5% of global GDP. But Adam Tooze, an economic historian, points out that the amount is not on the scale of what we have regularly spent in wars. In fact, it is about the same amount of money as a % of GDP spent on infrastructure in the BRICS countries at the turn of the millennium.?And it's by and large spending which will boost growth. When enough clean infrastructure in place, and demand for clean energy matches clean energy supply, prices should fall, raising global productivity, making us all richer. That would be great news, particular for younger generations. The challenge we face is getting to this point: funding the transition, and ensuring the transition is “just” and affordable for all, is critical. At Glasgow, we have had a glimpse of what might be possible. We now need to turn our ambition into reality by continuing to take action.