Despite the hot air, there’s optimism from the frontlines of COP26

The presence and influence of business and finance leaders at COP26 this year has been breathtaking. 

COP26 is like none other. Government leaders have figured prominently, activism is a feature but the presence and influence of business and finance leaders has been breathtaking.  It has provided a healthy dose of realism and optimism to the negotiations.

The Australian Climate Leaders Coalition of more than 30 of Australian biggest CEOs shared their roadmap for climate action in Glasgow, outlining practical steps to decarbonisation and increasing prosperity for Australia.  The World Economic Forum is forming an initiative to drive global best practice for board climate governance.

Australian companies are championing technologies, from hydrogen to carbon capture and storage proposals, attracting attention from world leaders.

COP26 has been a heady mix of those angry things are moving too slowly to those being constructive and finding solutions to those trying to protect their patch. The ultimate negotiation between 195 parties with different interests and goals is well under way. Game theory is on display in every quarter.

Vanessa Nakate and Greta Thunberg have led youth activists to Glasgow’s grand George Square demanding fundamental change; lamenting that despite governments meeting so regularly since 1995 to solve this complex, global, long-dated problem –only moderate progress has been made.

It is entirely reasonable to feel highly frustrated.

Had we started taking concerted action after the 1991 Rio Earth Summit - when the science was set out fairly comprehensively - the task at hand would have been a fraction of what faces us now.

But it is not too late.  As COP26 got under way, Deloitte analysis on the Turning Point for Europe revealed inaction would cost Europe around 6 trillion euros over the next 50 years when the cost of just 0.7% of GDP a year from now on could engineer a transformation to better Europe’s GDP in 2070 by about 730 billion euros.

The economics now stack up.

So what have been the big issues on the table?

One, with the finance sector here in strength, it is clear the commercials have swung in favour of action on climate change. Financiers do not want to be left holding assets being devalued because markets are shifting or physical climate impacts are biting.

This is very significant and will impact the cost of capital for every dollar of debt or equity across global markets over the next few years. A coalition of leading financial institutions, called the Glasgow Financial Alliance for Net Zero committed over $130 trillion to transforming the global economy for net zero. The IFRS has announced major developments in corporate sustainability disclosures.

Two, there is a realisation new markets, such as carbon markets, can be created. Notwithstanding the debate at home, there is a growing realisation the most economically efficient way to decarbonise global economies is to have a global carbon price. For Australia, this is one to watch – the discussions across many countries mean carbon border taxes are on the table and this will have significant impacts for our trade.

All of this will be difficult to negotiate globally but it could emerge in stages.  We could see carbon trading blocs emerge quickly, and slowly start to become linked.

Three, the economic importance of biodiversity and natural capital is growing.  The declaration to end deforestation by 2030 is significant. More than 100 world leaders have promised $25 billion of public and private funds to achieve the goal. The Taskforce on Nature-related Financial Disclosures (TNFD) is up and running and starting to build the required frameworks.

More than 40 countries, including major coal-using countries, including Poland, Vietnam and Chile, have committed to shift away from coal over the next two decades, with a commitment from 20 countries, including the US, to end public financing for "unabated" fossil fuel projects abroad by the end of 2022. More than 100 countries, including the US, Canada and Japan, have committed to reduce their methane emissions by 30 per cent by 2030.

At half time of the COP26 deliberations, it was the human face that is the most significant story - from those angry in the Square, to those who have been working hard on developing the practical solutions, business models and financing methods to enable real change.

What is striking is the new group of people in senior roles in finance, business, and even in governments who have deep knowledge of the issues and an ability to look over the horizon. This new wave of leaders is determined to move from talk to action.

So, despite all the hot air of COP26, the push for action is really on.

The mood is not about whether we should act, but how to accelerate action.

The pathway remains uncertain but the realisation of a narrowing window for action is palpable.

Perhaps it is naïve to be optimistic but those driving the change know what the consequences might be for not succeeding. In the words of Michael Gearin-Tosh, ‘An optimist is someone who knows how bad the world is…a pessimist is still finding out.’