The climate crisis is picking up pace.
Over July and August (2022), floods devastated Pakistan. In the worst flooding this century, at least two-thirds of the country has been affected, 33 million people have been displaced, and over 1200 people were killed. The knock-on affects now threaten a food crisis: millions of acres of agriculture land were flooded, and in some regions as much as 70% of crops were destroyed.
As reports show, the flooding in Pakistan is a clear example of the worsening impacts of the climate crisis. In this instance, extreme heatwaves and a period of intense low air-pressure contributed to abnormally high levels of rainfall during the monsoon season and greater levels of glacier melt.
Whatever the horrors, the experience in Pakistan is but one sub-plot in an unfolding storyline.
Across Africa, Europe and North America over the summer, wild fires raged. India experienced massive heatwaves. Droughts in the Horn of Africa have put over 20 million people at risk of starvation. And the oceans continue to warm rapidly, contributing to recent floods in Australia.
The latest report from the IPCC shows that there is no credible path in place to achieve the target of staying below 1.5C of global warming this century, and on present course we are likely to exceed 2.5C. Countries around the world are not doing enough to respond to the crisis; they are not meeting the climate targets (NDCs) they’ve set, and even if they were being met, the targets they’ve set aren’t enough on their own. As a result of this inaction, we are already experiencing the impacts of the climate crisis, and this will only worsen in complex, catastrophic and uncertain ways in the years to come.
Over the next few years, we need to see a massive global effort to transform economies and societies. Trillions need to be invested each year to fund this transition to build low-carbon infrastructure, develop green technologies and implement adaptation initiatives. Given the burden of historical emissions and colonial legacies, the Global North must make the biggest and most immediate changes, but Global South has significant needs too because of their greater exposure to climate risks and the urgency of sustainable development. Crucial to being able to meet these investment needs is mobilising finance.
Right now, it is assumed that private finance will take the lead.
Given the scale of investment required and greater efficiency with which it is meant to invest, private finance is assumed to be the key source of capital for the green transition. Yet private finance has so far failed to live up to the challenge. Present rates of climate finance are pitifully low — if estimates suggest that between $1.6–3.8trn is needed each year (for a target of 1.5C), in 2020 actual levels only stood at $632bn annually.
Even those initiatives that offered a glimmer of hope at mobilising private finance have proved a disappointment. Notably, the Glasgow Financial Alliance for Net Zero (GFANZ), the net-zero finance network with $150trn assets under management set up at COP26 by Mark Carney, has already fallen flat. The GFANZ recently changed a fundamental part of its membership rules, dropping its tight link to the UNFCCC’s Race to Zero initiative, which had been an independent guarantor of rigorous standards and a requirement of membership.
If private finance is failing to do the work, perhaps instead its the central banks that manage financial systems we should be looking to for leadership? Take the example of the Bank of England.
A few weeks ago, the Bank of England’s held its annual Climate & Capital conference, gathering leading financiers, regulators, and thinkers to discuss finance reform in the face of the climate crisis. To the optimists among us, this might have seemed like a great opportunity to discuss ways of mobilising finance to meet the needs of the green transition.
Yet the focus of the conference was almost entirely on how to adjust the UK’s capital framework to account for climate-related financial risks; in other words, how to protect financial institutions from the risks that the climate crisis posed to them and their businesses. A few interventions asked for more active efforts to align central bank policy with government fiscal policy. But as the Bank of England has already stated, it does not believe its role extends to addressing the causes of the climate crisis, for instance, the financing of fossil fuel industries.
In the context of such abject failures, the issue of climate finance is likely to take centre stage at COP27 in Egypt.
While it is desperately important for COP27 to be a turning point in the mobilisation of climate finance, the prospects don’t look good. This is because the failure of networks like GFANZ and the abdication of responsibility by the Bank of England are not isolated events. They are part of a wider pattern of how global financial systems are structured and regulated.
The wave of financial globalisation that has swept the world since the 1970s has shaped regulators, governments and national financial systems to its whim; embedding the principles, practises, and policies of market-based finance into a global macro-financial structure.
Under the dominance of market-based finance, markets are revered as perfectly efficient and equilibriating, while governments are rendered ‘inefficient’ by default, whatever their history of leading critical innovationsover capitalist history. Efforts to shift finance towards net-zero goals, shaped by a ‘risk-based approach to decarbonisation’, are premised on voluntary initiatives or making minor tweaks to how the market functions, such as correcting inefficient pricing through better information, disclosure and peer pressure processes. Central banks become thinly veiled protectors for the financial elites they were meant to regulate. And private finance is tasked with doing all the heavy-lifting in the green transition, even though it continues to fail to make the shifts required.
The dominant macro-financial structure has created a messianic reliance on market-based approaches that threatens the collective response to the climate crisis. Where market-finance is embedded in macro-financial regimes, there seems little other choice but the technocratic nightmare of a fiery, perfectly competitive climate apocalypse.
There are, of course, alternatives available, if those with power choose to see them.
Public financial institutions can mobilise private finance very effectively. Coercive credit allocation policies can steer money away from fossil fuels into renewable energy. And expanded central bank remits would enable them to better steer financial systems towards public goals. Such policies have a lengthy history of being effectively used to shape financial flows into priority economic sectors, and would help force the alignment of finance to meet net-zero targets. The adoption of such policy proposals are all possible and they have been used before — it is a political choice not to do so again.
Nonetheless, the rapidly accelerating pace of the climate crisis makes COP27, starting next week, a critical moment for action. If the world’s leaders continue failing to structure global financial systems towards public goals like the green transition and net-zero, than the devastation we’ve seen in Pakistan will become an ever more frequent sight in the years to come.