THE UK in partnership with Italy is hosting Climate COP26 at Glasgow, with heads of states, government delegates, business leaders, scientists and civil society activists in attendance. COP26’s major objective is the review of the status of the Nationally Determined Contributions that 190 countries committed to at Paris in 2015 to limit global warming to 1.5 degrees Celsius. Since Paris, scientific evidence strongly suggests that reaching that goal is urgent — the UNEP in its report on Emissions Gap has warned that country pledges under the NDCs will fail to keep the global temperature rise under 1.5°C this century, and that the world will record 2.7°C with hugely destructive impacts.
Economists now say that non execution of the climate change agenda would have catastrophic consequences for the global economy. Climate change is in fact a major opportunity for promoting sustainable economic growth. There are no trade-offs involved between economic growth and climate risk mitigation and adaptation and firms can reduce emissions without sacrificing profits. Public awareness about climate risks has grown over the last several years as new evidence and scientific reports are disseminated at regular intervals.
Paris had set a target of $100 billion in climate finance to be delivered by developed countries annually to secure net zero emissions by 2050 and keep 1.5°C within reach. The other goal was to adapt and restore ecosystems to protect communities against climate risks. The rules to implement the Paris agreement have yet to be finalised. The latest data indicated that the target of $100bn will only be attained in 2023.
There have been two significant developments with consequences for the Paris agreement. First, President Biden has restored the leadership of the US in prosecuting the climate change agenda, reversing president Trump’s unthoughtful decision. He is making strenuous efforts to get funding for the agenda but is facing difficulties within his own party. Second, the Covid-19 pandemic led to a global recession. Growth slowed down, unemployment rose and governments had to step in with huge packages of fiscal stimulus for citizens and businesses. Only recently have the pandemic’s effects begun to taper off, thanks to vaccinations, but the global economy is not yet out of the woods. The capacity of developed countries to deliver the finances promised in Paris out of their budgetary resources has been impaired.
Climate change is in fact a major opportunity for promoting sustainable economic growth.
Luckily, the private sector, and particularly venture capital funds for start-ups, environmental, social and governance (ESG) funds for green investment, a growing appetite for green bonds floated by sovereigns and non-sovereigns, bank lending for clean technology investments, etc are beginning to fill the void. Last year, over $500bn were invested in energy transition projects geared to decarbonise energy, transport, industry and farming. In 2010, this amount was almost half. It is estimated that investment in climate start-ups grew at five times the rate of overall global start-up funds. It is not only start-ups and venture capital funds; late-stage growth and capital have also begun to enter the clean technologies market.
Tesla, a newcomer to the auto industry, has crossed the $1.1 trillion market capitalisation mark based on projected demand for electric vehicles. Previously, only Apple, Google, Amazon and Microsoft had reached that milestone. Tesla is now worth as much as the combined market cap of the world’s nine largest automakers. Elon Musk hopes to reach a target of 20 million vehicles a year with a 50 per cent growth rate.
ESG assets surpassed $35bn in 2020 up from $22.8tr in 2016 reaching a third of the current total global assets under management. By 2025, Bloomberg projects ESG assets to rise to $50bn out of $140tr global assets under management. Clean energy was the top performing US equity sector with a total cumulative return of 185pc. The energy sector lost 33pc the same year.
The Glasgow Financial Alliance for Netzero launched by former Bank of England governor Mark Carney has brought together over 160 firms (banks, asset managers which collectively manage $70tr in assets) to accelerate the transition to net zero emissions by 2050. JP Morgan Chase announced it would commit $2.5tr to sustainable investing over 10 years, of which $1tr is for clean technologies. Blackstone, one of the world’s largest asset managers, has created a $1tr decarbonisation vehicle. Private equity funds have committed $16bn to climate tech.
Major corporations such as Microsoft and Amazon have also set up climate tech funds. Energy giants have realised they will lose business and market shares if they don’t realign their business plans for the coming decades in light of the emerging consensus on tackling climate change. Foundations and philanthropic organisations have also become active and begun to channel long-term patient capital for climate transition research and projects without expecting returns in the short term.
Pakistan is the fifth most vulnerable country to climate change although its CO2 emissions are low. The biggest risk is to the water-food-energy nexus because the lifeline of Pakistan’s sustenance is the Indus River which is dependent for more than 65pc of its flows on snow and glacier melting. Floods, droughts and changes in rainfall pattern may affect water availability in the irrigation system which feeds 18m hectares (44m acres) of agricultural land. The Jhelum and Chenab derive 50pc of their flows from glacier melting.
After a long hiatus, the present government has embarked upon an ambitious programme of constructing 10 reservoirs for water storage to be released in the winter months and also generating clean hydroelectricity. Public finances are not strong enough to provide funds for early completion of these projects. Multilateral development banks have provided debt financing but delays in completion will result in large cost overruns which has been the case so far in all projects financed under the PSDP.
Wapda has just launched a $500m green bond. Pakistan has not yet accessed or tapped other sources of private sector financing either from domestic or global investors. Each dam project can be transformed into a corporate entity in the public-private partnership mode and debt and equity financing can be obtained from domestic and international private markets keen to show their commitment to green finance.
The writer is the author of Pakistan: The Economy of an Elitist State.
Published in Dawn, November 4th, 2021