Here are some of the ways climate change influenced global finance in 2021
The past year featured several promising developments on climate finance, from pension funds and international lending, to tackling cryptocurrency’s enormous carbon footprint.
The cost of tackling climate change can be steep, but there were more signs this year that nations and financial institutions were starting to take the topic more seriously.
Below are four promising developments on the finance front that could help mitigate the challenges to keeping future warming to 1.5°C.
BANKS AND OTHER FINANCIAL INSTITUTIONS COMMIT HUNDREDS OF TRILLIONS OF DOLLARS TO NET ZERO
The single largest finance announcement of 2021 came near the end of the year, during COP26’s Finance Day in November.
There, some 450 banks and other financial institutions committed around US$130 trillion (CA$163 trillion) toward the transition toward net zero, around 40 per cent of the world’s financial assets according to the United Nations. The institutions are collectively known as the Glasgow Financial Alliance for Net Zero (GFANZ), and include all six major Canadian banks as well as B.C.-based Vancity, Canada’s largest credit union.
This isn’t new money, necessarily, but realigning lending toward projects and institutions that are committed toward transitioning to net zero. As Mark Carney, the former governor of the Bank of Canada, put it in November: “It is about client focus, going to where the emissions are to help get them down. So, companies that have plans in place to reduce the emissions, will find the capital, those who don’t, won’t.”
However, some observers were skeptical of the pact, given the lack of information on accountability and reporting, as well as the fact that there were no standardized criteria for what constitutes financed emissions among the pact’s participants. Delegates at COP26 also drew attention towards a need for greater finance for Loss and Damage, or the amount of money that organizations would provide to support developing countries already impacted by climate change.
NATIONS PLEDGED TO END FOSSIL FUELS ABROAD
COP26 was the stage for a second major financial announcement, more directly targeted at fossil fuels: dozens of nations and major investment and development banks pledged to cease funding for fossil fuel projects abroad by the end of 2022.
As of this writing the number of signatories to this particular pact has grown to 39 countries and banks since then, including Canada, but it does have some caveats, chiefly to cease lending to ‘unabated’ fossil fuel projects, essentially those without some kind of carbon capture component.
That point tripped up some observers, who said most carbon capture technology is unproven, and the use of it could end up prolonging the shelf-life of fossil fuels — a point often made by Indigenous peoples, who also generally criticized COP26’s ultimate focus on carbon credits in that it still allows pollution.
In general, however, the announcement was relatively well-received, though some critics pointed out the contradiction of some of the signatory nations, like Canada, winding down fossil fuel development abroad while continuing to subsidize them at home.
CANADA PENSIONS MOVE TO DIVEST FROM FOSSIL FUELS
One source of investments for fossil fuels is pension plans, and 2021 saw some of Canada’s largest take steps toward excising them from their portfolios.
In September, the Ontario Teachers’ Pension Plan Board, which manages the largest profession-based pension plan in Canada, announced interim targets to decarbonize its $227.7-billion portfolio, with planned cuts of 45 per cent by 2025 and 67 per cent by 2030, with a view to net zero by 2050.
And in October, the Caisse de dépôt et placement du Québec (CDPQ), the province’s largest public pension fund, announced even more aggressive plans, which included a total exit from oil production investments by 2022. The CDPQ also aims to include $54 billion in green assets by 2025, and slash the carbon intensity of its total portfolio by 60 per cent by 2030.
SIGNS OF TACKLING CRYPTOCURRENCY’S HUGE CARBON FOOTPRINT
The cryptocurrency craze showed no signs of abating in 2021, though it remains as volatile as ever – certainly, more traditional national currencies don’t normally lose hundreds of billions of dollars in value because a certain electric vehicle magnate says something on Twitter.
Where this enters the realm of climate change and finance is that cryptocurrency mining uses an enormous amount of power, collectively more than some sovereign nations. That can actually worsen global emissions, depending on how that power is generated.
The problem has become better known as the years pass, and one promising development in 2021 was the decision by Salvadoran President Nayib Bukele, apparently something of a cryptocurrency enthusiast, to announce plans for a new facility that will provide 95MW of geothermal energy in order to power the famously intensive bitcoin ‘mining’ process. They’ll certainly need it, as Bukele made El Salvador the first nation to accept Bitcoin as legal tender.
Other countries already have tried to keep ahead of the cryptocurrency boom by setting aside power for it, including Canada, whose grid is largely zero-emission. In April, two B.C.-based bitcoin mining companies announced plans for a joint subsidiary in Alberta that would secure 20MW of the 600MW of new wind power slated to come online in 2022 in the province. And Quebec, whose grid is almost entirely made up of hydropower, proactively sets aside blocks of power specifically for crypto miners, at different rates.
In all, 2021 featured some major shifts in the finance world, something that will need to be watched as we head into 2022 — not only to see the effects those shifts have in combating climate change, but also to see whether it’s enough, or if even more is needed.
