FINANCING THE TRANSITION TO NET ZERO AFTER
COP 26The Covid-19 pandemic engendereda growing public demand for climate
action and a global call to aligneconomic recovery with long-termsustainability and climate goals
whichwill
requirefurthercommitments to finance thetransition to net zero by 2050. In thatsense, COP26 constituted a unique
opportunity to enhance thecountries ambitions and reiterate
the global commitment to combat climate change with a clear emphasis on a) phasing out
fossil fuel use to fend off further impacts b) resilience and adaptation to climate effects,and c) biodiversity hotspots conservation including the accommodation for morereforestation for instance.
The summit came to bolster endeavours towards four crucial outcomes: a) increased
finance for climate action; b) more ambitious emissions reduction commitments; c)strengthened climate change adaptation efforts, with a focus on loss and damage, througha robust fiscal and policy framework; and d) upgraded international collaboration onenergy transition, clean road transport, and protection of nature. While these goals aremeaningful, the roadmap towards achieving them will determine how adequately theinternational community can tip the balance over climate change.
Regardless of the several initiatives, plans, and commitments, public finance for climate
action has shown the least progress so far, making the climate dialogue on finance during
COP26 and its outcome decisive for the achievement of the planned transition to net zero.
The latter cannot occur if adequate financing is not properly allocated since after all, wherefinance goes, emissions go.

State of climate finance: unmet goals and unbalanced funding
Twelve years ago, developed nations made a significant pledge under the UNFCCC tomobilize US$100 billion for climate finance in developing countries annually by 2020, tosupport their adaptation to climate change and thereby mitigate the global rise intemperature. Then, six years later, under the Paris Agreement, countries committed tomaking finance flows consistent with the achievement of long-term climate goals and tobalance funding between mitigation and adaptation.
Today, the pledge has clearly fallen short, as OECD estimates show that the total climate
finance reached US$79.6 billion in 2019, and the balance is unmet while the impacts
continue to grow, affecting particularly the most vulnerable populations. In fact, according
to estimations of the Climate Policy Institute (CPI), global mitigation finance reachedUS$571 billion in 2019/2020, while adaptation finance totalled US$46 billion with 51% ofannual climate finance coming from the public sector (mainly by DFIs) and 49% from theprivate sector. The dedicated amounts might seem substantial, however, based on
scenarios that explore climate finance needs for energy systems, buildings, industry,transport, and other mitigation and adaptation solutions analysed by the CPI, it isestimated that “annual global climate finance must increase by 588% to USD 4.35 trillion if ourclimate objectives are to be met by 2030”.

Why such a slow progress?
The inability of developed countries to uphold their funding commitments, and the factthat most of the funds that were actually mobilized were distributed in the form of loans
and not grants, had exacerbated the mistrust of developing countries. The latter were, andstill are, seeking reassurance that finance commitments will be met. While the formal
submission of commitments under the Paris Agreement could have played an importantrole in that sense, the European Union is the only grouping that has submitted its
communication on its projected future climate finance provision.
Furthermore, if one considers the overall investment in high emitting sectors, climatepositive investments are not significant, and we still largely consume fossil fuel-basedelectricity. This points out to the fact that while several institutions have started taking
action on climate change through emission reduction targets and net zero pledges, actionin the real economy dawdles.
Achieving net zero by 2050 will require the mobilization and alignment of all actors of thepublic and private sectors with the Paris Agreement and when it comes to finance more
specifically, every segment of the financial sector needs to build a strong foundation foralignment. But in reality, and based on present experience, public and private sectors do
not have a generally accepted definition of climate finance or an actual understanding ofwhat the minimum requirements for financial actors are in that regard.
All in all, we are still awaiting conceivable and cooperative efforts to foster understandingof each actor’s role and prerogatives as well as transparent net zero commitments
supported by coherent transition plans spanning across all sectors.

COP26 paving the way to net zero
Overall, COP26 has further highlighted the necessity of collective global action in
addressing the climate crisis, including a clear emphasis on financing the transition,
especially considering that most economies are currently recovering and rebuilding after
Covid-19. Addressing national concerns first might be an understandable compulsion thatgovernments should not give in to. In fact, the financial sector was extensively represented
at Glasgow where Finance Ministers, International Finance Institutions and other actors of
the sector met with a view to principally agree on a new collective finance target tosupport the urgent climate action required to reach the net zero commitment.
The targeted topics for funding stated during COP26 for the public and private sector
finance are complementary in the sense that the former focuses on the development of
the infrastructure and the latter on the technology and innovation needed to support thetransition. Regarding the public side, the developed countries reiterated their pledge tomeet the US$100 billion of climate finance to developing countries. MultilateralDevelopment Banks (MDBs) have restated their commitment and ambition to support thetransition and presented an update of their progress on the development andimplementation of a framework to align with the Paris Agreement. On the private financeside, around 450 financial firms, members of the Glasgow Financial Alliance for Net Zero(GFANZ) committed to aligning their portfolios to net-zero by 2050 and pledged US$130
trillion of assets until then to support the global effort.
The importance of climate finance tracking and the need for a common reporting
framework in that sense was a big focus of the discussions during COP26. Moreover,besides the MDBs, the GFANZ members also committed to an interim target for 2030 andto annually report on their financing activity using the Partnership for Carbon Accounting
Financials (PCAF) standards for tracking emissions. In that sense, the disclosure rule will
intensify data needs and collection processes that are in scope of the reporting
requirement and information will be certainly sought from partners and clients to ensurecompliance and alignment.
In general, it is becoming clear that, although it is not yet mandatory, all financialorganizations of all sizes and geographical coverages will have to align their strategies,
investment policies, activities, and operating procedures with the Paris Agreement toremain relevant, competitive and benefit from potential collaborations with MDBs andother major Financing Institutions.
Strong with its 20 years of experience in the fields of climate change mitigation,adaptation, and resilience, EXERGIA can accompany your organization in its transition
journey through the provision of the following services:
Development, implementation and monitoring of inclusive climate finance strategies
and climate action plans.
Support to the evaluation and/or improvement of green finance strategies andinstruments including organizational change, portfolio review, carbon footprint
assessment and gap analysis.
Development and implementation of innovative climate finance tools and solutions
including tools facilitating portfolio screening and assessment in climate andbiodiversity perspectives.
Development and implementation of ESG (Environment Social Governance) and E&S
management as well as climate risks screening, management, and monitoring
systems (FSB-TCFD).
Design and technical evaluation of multi-sector investment plans, complex bankableprojects and project pipelines in sectors such as renewable energy, energy
efficiency, waste and water management, agriculture and rural development,
agroforestry, sustainable tourism, etc.
Support in the development of financial products and services to address climatechange such as green, blue, and social bonds.