The 26th United Nations Climate Change Conference of the Parties (COP26) to be held in Glasgow, Scotland, from 1-12 November 2021 is widely regarded as a definitive line in the sand in the shift to a low carbon future.
Article 6 of the Paris Agreement is set to be passed at COP26, establishing credible, global rules around international carbon trading and green finance. Known as the ‘Paris Rulebook’, Article 6 is designed to incentivise countries to set tougher new five-year emission reduction plans, known as Nationally Determined Contributions (NDCs).
More importantly, it will help them reduce the overall cost of meeting their NDCs through voluntary international cooperation and by providing access to a wealth of green lending.
In advance of COP26, public and private sector investors have been shifting their focus and lending priorities towards proactive entities with defined plans to achieve carbon neutrality well ahead of 2050 and stay competitive in a decarbonised world.
Article 6 is expected to lead to the fixed requirement by lenders to screen each investment based on its green credentials. This means projects, companies and initiatives that do not meet the criteria will face rising cost of capital since central banking, investment banking, private finance, asset managers, superannuation and insurance sectors are themselves increasingly being judged on their role in the transition to net zero.
An example of the seriousness with which financial markets are taking climate change is Climate Action 100+, an investor-led initiative which requires the world’s largest corporate greenhouse gas emitters take necessary action on climate change. Climate Action 100+ currently has US$52 trillion in assets managed by the 545 investors participating in the initiative, representing over 80% of global industrial emissions.
According to the Global Commission on the Economy and Climate, bold, early and decisive climate action has the potential to deliver at least US$26 trillion in global economic benefits up to 2030 and to generate over 65 million jobs.