How to plug the green funding gap

Moral Money has always tried to cover sustainability angles from all corners. So we are delighted to offer two very different new insights this week to help frame the COP26 talks. Our newest team member Simon Mundy has authored Race for Tomorrow, a book out this week, which explores the global scramble to respond to climate change through a two-year journey across 26 countries. Check out this video trailer for the book, and Simon’s cover story for this week’s FT Weekend Magazine.

And if that inspires you to ask how you can respond in your career (be that as a lawyer, financier, consumer or corporate leader), check out a masterclass series we have created to teach the basics of ESG — featuring video classes from Paul Polman, Mary Schapiro, Leo Strine and Lily Cole.

On the eve of COP26, this week’s newsletter looks at a couple of hot topics in the broader debate on climate action and the energy transition — ranging from the strategy of the Chinese-led Asian Infrastructure Investment Bank, to the debate about sustainability inside the US Securities and Exchange Commission.

From Monday, we’ll be in your inbox every weekday for the duration of the UN climate summit — giving on-ground analysis and insights from Glasgow on the hottest story of the moment. We’ll see you then.

China vs the west: Who will plug the emerging markets green funding gap?

When finance ministers from around the world gather in Glasgow next week, there will not be many Chinese representatives. Blame that on geopolitical rivalries, if you like. But tough quarantine rules in China, which have made it hard for officials to leave — or outsiders to get in — are an issue too. (I am told that John Kerry, US climate envoy, was presented with a two-week quarantine rule when he tried to visit Beijing before COP26 to hammer out a US-China climate deal; he decided to skip a visit as a result.)

But as Glasgow looms, parts of the Chinese government are keen to tout their green credentials. Consider the Asian Infrastructure Investment Bank. On Wednesday, it held a virtual plenary session (which I moderated), and Jin Liqun, the bank’s president, pledged that the AIIB would align itself with the Paris goals by 2023, while 50 per cent of its lending portfolio would be directed to climate-friendly activities by 2025. He also stressed that the AIIB was not funding any coal plants among its overseas projects.

A cynic might carp that anything the AIIB does (not) do is dwarfed by the vast size of China’s domestic coal activity. Some critics have other issues too: during the plenary, the online audience asked a stream of questions about how transparent the AIIB would be in its policies and portfolios. But, to Jin’s credit, he did something Chinese officials did not used to do — accept open questions. Most notably, he pledged that the AIIB would co-operate with other multilateral development banks, adopting common reporting and disclosure standards, and also promised to engage in blended finance initiatives to go green.

How this will really play out remains to be seen — and scrutinised. But the plenary also revealed that there were plenty of emerging market countries looking for funds from the AIIB and other MDBs: the finance ministers of the Maldives and Philippines also told the plenary that while they wanted to introduce climate friendly measures, they faced a dire shortage of affordable funds for these projects. Since the AIIB expects to make $50bn cumulative climate finance loans by 2030, no doubt it will be ready to step in.

Meanwhile, in the run-up to COP26 a host of low-income countries have expressed dismay that rich western countries have been dragging their heels on their pledge to provide $100bn in aid annually to the developing world to support transition. As Moral Money went to press, it was not clear if this $100bn total would come through. This target was missed in 2020 too.

But even if it does (a big “if”) the hard truth is that it is barely a drop in the bucket of the trillions of dollars that emerging markets need for the climate transition. As a result, a central focus for COP26 will be how to mobilise the estimated $100tn — not billion — of private funds in the world in support of this cause.

Expect to hear calls for the MDBs to get more creative with blended finance programmes, say by removing foreign exchange risks and sourcing projects. There will also be proposals for a quasi-green “kitemark” to show global investors which projects truly align with Paris climate change goals — or not. (There will also be appeals for carbon pricing from the financial world; but don’t hold your breath that this will materialise soon.) Moral Money will be covering this closely. (Gillian Tett)

As part of our coverage of COP26 we want to hear from you. Do you think carbon pricing is the key to tackling climate change? Tell us via a short survey. We will share some of the most interesting and thought provoking answers in our newsletter or an upcoming story.

Days away from COP26, US SEC faces long road ahead on climate disclosure rules

As the Biden administration heads to Glasgow for COP26, the White House is touting the Securities and Exchange Commission’s effort to require companies to disclose more information about climate change risks.

But finalising the SEC rule is easier said than done. The agency started off the year with a clear message that it wanted to require corporate climate disclosures, but the effort has become bogged down. Now, it is far from certain that the US will mandate climate disclosures before the next presidential election in 2024.

In July, SEC chair Gary Gensler said he wanted the agency to propose climate disclosure rules “by the end of the year”. But in testimony before members of Congress this month, Gensler said the proposal could be unveiled this year “or early next year” — a sign interpreted by SEC watchers that his timeframe has slipped.

Part of the problem might be that the SEC is working to develop its own climate disclosure framework.

Speaking to members of the EU parliament in September, Gensler said that the SEC should study and “learn from other frameworks and standards”, such as the Task Force on Climate-related Financial Disclosures (TCFD) framework. Sources have told Moral Money they were perplexed by Gensler’s statement because it seems the SEC is doing more work than it needs to.

But the main reason for a delay of the SEC’s climate rules is the fact that these new regulations are all but certain to be challenged in court. West Virginia attorney-general Patrick Morrisey, a Donald Trump acolyte, has already threatened to sue the SEC to stop the climate rule. “If you choose to pursue this course, we will defeat you in court,” he told the agency in March.

Republicans in Congress have already attacked TCFD. Any SEC rule that builds off the TCFD framework would probably be attacked by Republicans in court.

As Martin Wolf wrote earlier this week, one of the least bad outcomes from COP26 would be some agreements between the US and China on how to lower carbon emissions. But how can the US co-ordinate with the Chinese when US Republicans do everything they can to block climate regulations at home? (Patrick Temple-West)

Chart of the day

Over the past decade, 1,485 institutions, which collectively have $39tn in assets under management, have committed to divesting from fossil fuels, according to Divestment Database in a report released this week. The report comes at a time when divestment advocates are celebrating major wins: Harvard announced last month that it would be divesting all indirect investments in fossil fuels. Similar divestment announcements from Dartmouth, the Ford Foundation, and La Banque Postale quickly followed suit.

Smart reads

• Could a four-day work week save the planet? Our colleague Simon Kuper writes that giving workers less time to “produce” rather than asking them to significantly change their lifestyle to stop buying, flying and dining could be a pathway to both slowing output and improving citizens’ lives.

• Activist investor Dan Loeb has taken a stake in Shell and called for the company to be broken up — in part to better focus on renewable energy. Third Point said a separate entity should focus on cleaner energy, to “combine modest cash returns with aggressive investment in renewables and carbon reduction technologies”.