Why is the climate crisis not treated with the same concern as the Covid-19 pandemic? Why did it not elicit the same response, especially in terms of financial support? In this article, it will be argued that it is high time for setting up climate emergency finance.
Covid-19 was unexpected. The world immediately declared it an emergency and treated it as such. In the face of enormous suffering and economic crisis, the world tried to react in a coordinated way. Now take the climate emergency. It’s been widely foreseen. Decades ago science already knew, and had been warning the world, that by continuing to pump enormous amounts of carbon dioxide into the atmosphere we were risking a cataclysm of global proportions. We insisted on calling it climate change, not an emergency, nor a crisis, although more recently the most respected international organizations and people dealing with the issue started to change a little bit in terms of words, language, narrative.
For example, the UNFCCC climate experts, while presenting their latest report on world countries’ Nationally Determined Contributions (NDCs) called it “Worrying Trends Confirmed”. And UN Secretary General, Antonio Guterres, while commenting on the latest IPCC’s report released last summer, said “this report must sound a death knell for coal and fossil fuels, before they destroy our planet”.
In any case, beyond the words, the essence remains: the world has never treated it as an emergency and never really reacted constructively, least of all in a coordinated way.
It’s as simple as that: if we’re in a climate emergency, we need to organize an emergency response. And if we’re convinced that finance can (and, it claims, is willing to) play a pivotal role in tackling the climate emergency – and the announcement by the Glasgow Financial Alliance for Net Zero-GFANZ at COP26 appears to be a confirmation in that respect – we need emergency finance.
The question is: how can we define emergency finance?
To try and answer this question, let’s take a step backwards. With the adoption by UN member countries of the UN 2030 Agenda and the 17 Sustainable Development Goals in 2015, sustainability emerged as an essential guiding principle for businesses everywhere. The financial industry followed suit, and now everybody is talking about sustainable and “green” finance.
Attending (mostly in digital format) finance events across the world these days, some of the most frequent sentences, claims, discussions you’ll hear from speakers are about what funds are more sustainable, what ESG rating methodologies are more comprehensive, what green bonds are more impactful, and the likes. That means that sustainable finance has become the new norm and of course that’s great, since only a few years ago it was still a niche market. If you state that sustainable finance is now the hottest topic in the industry, you’re definitely right.
So, sustainable finance has won its battle. But humanity still risks catastrophically losing the climate war.
Despite the moment sustainable finance is having, the climate crisis is unfortunately worsening by the minute: “The Heat is On”, reads the latest UN Environment Programme-UNEP’s Emissions Gap Report. The reason is that sustainable finance is not equipped to play the above mentioned role in fighting the crisis.
Although sustainable finance is king, public and private financial flows are not heading in the right direction at the pace required. In fact, they are still largely directed in the opposite direction, and supporting some of the most environmentally harmful industries to an excessive extent, with trillions of dollars in investment: Coal, oil and gas firms have received $3.8tn in finance since the Paris climate deal in 2015.
The limits of sustainable finance and why climate emergency finance is needed
In brief, sustainable finance is effective in achieving incremental improvements in a number of sustainability dimensions over time, usually over years. It can’t be enough when what’s needed is a brutal, disruptive, systemic change on a global scale.
We don’t have time, the clock is ticking, we have to act urgently, hence we need something else and we need it now. After having rightfully celebrated its historic victory, we’ve got to put an end to the sustainable finance era and rapidly open the climate emergency finance era. But, again: what is emergency finance?
Let’s try to briefly outline the possible key features of climate emergency finance.
If we consider emergency finance as a “therapy” for the climate crisis, we must look at the root causes of this terrific “disease”: the burning of fossil fuels, whose CO2 emissions are the dominant cause of global heating (it’s not simply a “warming”, some scientists even say we’re entering the Pyrocene, the Age of Fire).
So, the first and most crucial point for climate emergency finance is to stay light years away from fossil fuels. It means cutting any ties with fossil fuels, forever. On the other side, it means supporting massively and possibly speeding the transition to the era of clean and renewable energy.
It’s not by chance, for example, that immediately halting investments in fossil fuels is on top of Fridays for Future movement’s demands to world leaders. That “abolish fossil fuel industry rapidly and immediately” was one of the key messages sent by the Youth 4 Climate conference held in Milan at the end of September. That more and more big institutional investors across the world – including the richest University on earth, Harvard – make the decision to divest from fossil fuels.
Another key feature of emergency finance is not only listening to the science, as Greta Thunberg has been rightly saying over and over, but acting strictly according to the science. In other words, climate science must rule, emergency finance must obey.
For example, initiatives like the Science Based Targets Initiative (it aims to set a clear, rigorous, verifiable decarbonization path for companies, strictly aligned with the Paris Agreement goals in terms of emissions reduction, and for financial institutions who want to align their activities as well) must become the norm, develop more and more rigorously – as is actually happening – and systematically, and should be made mandatory in finance.
Emergency finance is also required to show the real, concrete climate impact it makes. Time has passed for maximizing financial returns. Time has come for maximizing climate positive impact. And for disclosing it, possibly in real time or something.
Finally, climate emergency finance implies not only being active, it implies climate activism. The so-called “active investors” are those willing to engage with companies they’re invested in, with the aim to push those companies towards higher social and environmental performances. The engagement process usually takes years to see concrete results. But, again, we don’t have time. Financial actors must now take a stand on climate issues, be on the frontline by joining major civil society initiatives that demand system change, for example.
Consider just a couple of examples of initiatives that could be supported, endorsed, signed, and popularized too, by investors really willing to make a difference here and now even beyond their financial “comfort zone”.
Take the example in Europe of the European Citizens’ Initiative for a new EU law to ban fossil fuel advertising and sponsorship. The goal is to reach one million signatures in twelve months’ time so that the EU Commission must consider drafting a “tobacco-style” new law targeting fossil fuel ads. Imagine going to fill up your gas tank at the station and reading “fossil fuel fumes kill”.
Here’s another example. At global level, the Fossil Fuel Non-Proliferation Treaty initiative (FFNPT), that tries to accelerate the phasing out of fossil fuels production through international cooperation. What is behind this initiative is the historical and successful model provided by the Treaty on the Non-Proliferation of Nuclear Weapons: fossil fuels are the nuclear weapons of our times, that is the equation.
Could a new “Glasgow Agreement” modelled on the FFNPT be reached at COP26? Who knows. Don’t forget that the Paris Agreement doesn’t even mention fossil fuels.
At the end of the day, those working in finance are people, women and men, with partners, children, parents, relatives and friends. They’re not aliens, they were not made for financial returns, they need a liveable planet as everybody else. The fight against the climate emergency is also their fight. Emergency finance could represent a super-powerful arm in this fight. We can’t afford not to use it to the maximum.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — In the Featured Photo: Island state nations like the Marshall Islands are the most vulnerable to climate change. Featured Photo Credit: Asian Development Bank