“Follow the money”. The somewhat abrupt advice of one of my first bosses when I asked him how to be a financial journalist offers a different, and more optimistic, perspective on the outcome of COP26.
At first glance, the final declaration of the Glasgow summit is a disappointing compromise, diluted by a futile battle between developed countries with good intentions but little money and an emerging bloc that does not want to stop polluting for fear of destroying their economies. But if we leave aside the vague statements of the 197 nations present at COP26 and look at where the money of governments, investors and companies is going, we will see another narrative emerge.
The past few decades of climate discussions, interventions and projects have triggered a series of structural changes, scientific advances and financial innovations that will keep the pressure on this issue despite the large gap between developed and developing countries.
This dynamic is fueled by rivers of investment from Wall Street, the City of London, Tokyo and even Shanghai. The investment banks, large investment funds and multinationals have decided to take the field in this battle not, mind you, out of altruism but because they have understood that saving the planet is a good business.
The most striking example of this trend comes from the increase in investments in renewable energy. Since the Paris climate summit in 2015, more than $ 2.2 trillion has been spent by companies, investment funds and governments to make energy generated by the sun, wind and batteries more efficient, according to an analysis by Bloomberg.
The result is that “clean” energies are no longer a luxury reserved for a handful of Western countries and have become a serious rival to fossil fuels in much of the world. It is no coincidence that, at the beginning of COP26, countries such as Indonesia, Vietnam and Poland promised to (gradually) eliminate coal from their energy grids.
Alongside them, large international financial institutions – including the HSBC, the big British bank, and the giant Fidelity International fund – have pledged to stop funding coal-based projects.
The same trend is visible in the mobility sector. Technology and financial concessions have drastically reduced the price of hybrid and electric vehicles in recent years. In Europe, this category represents 17% of new cars sold this year, while globally, the number of “clean” cars will almost double in 2021, reaching around 5.6 million vehicles.
When I talk to bankers and investors, it is almost possible to see the green dollar sign in their pupils when they talk about the lucrative prospects of new industries such as “green” steel and hydrogen.
For them, money is not a problem because pension funds, insurance companies and small investors just give them money to put into “clean” investments. For now, funds linked to ESG (environmental, social, governance), or responsible investments, are around 38 trillion dollars but in 2025 they will reach 53 trillion, almost a third of all managed assets.
To turn this tide of money into a virtuous circle in which huge funds are distributed where they are most needed, or where governments are particularly recalcitrant like India and China, clear rules will be needed. The practice of “greenwashing”, the facade environmentalism that actually does nothing, is a serious and widespread problem.
In this, COP26 has made some progress, with the creation of a market for coal, in which polluters, such as airlines, must pay those who undertake to clean up the planet.
All this may not be enough to avoid climate catastrophe, especially if with the lights out, certain countries, companies and banks will continue to do as they please.
But interestingly, starting with Glasgow, the home of free-market prophet Adam Smith, the path of money could lead to a cleaner future.
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