09.11.2022

UK COP26 Presidency reinforces urgent need to transform financial system to deliver Glasgow Climate Pact ambition

UK COP26 President Alok Sharma will today chair a ‘COP26 One Year On’ panel event, to mark Finance Day at the COP27 UN Climate Change Summit in Sharm El-Sheikh, Egypt.

This panel event will explore the roles of public and private finance in the climate transition and discuss how actions through international partnership can catalyse greater outcomes. In particular it will highlight that the whole international system needs to go further and faster, making the case that every institution should be adapting to making combating the climate crisis a fundamental part of their overall purpose.

At COP26, almost 200 countries came together to agree to the Glasgow Climate Pact, keeping alive the ambition of limiting the rise in global temperature to 1.5 degrees. Governments, institutions and investors committed to mobilise more finance than ever before, setting out a vision for turning the billions of climate finance into trillions in low carbon, resilient investment and support for those on the frontline of climate change.

Today, we find ourselves in a world facing multiple global crises, threatening economic, food and security for many. Despite these challenging conditions, progress is being made.

The global financial system’s direction of travel remains clear. Economic opportunity is driving climate action. Wind and solar continue to become cheaper than coal and gas while the economic risk of inaction becomes starker.

Faced with these challenges, developed countries are showing their continued commitment to support developing countries, setting out more detail in the $100bn Delivery Plan Progress Report, including on doubling adaptation finance by 2025. The UK has underlined its commitment to providing £11.6bn in climate finance, with Prime Minister Rishi Sunak announcing that the UK will triple support for adaptation to £1.5bn in 2025. Foreign Secretary James Cleverly also announced a significant increase in the UK’s financial support to African countries on the frontline of climate change, confirming that the UK will provide £200 million to the Africa Development Bank (AfDB’s) Climate Action Window (CAW).

We are supporting new approaches to help vulnerable countries access the finance they need as demonstrated through the Task Force on Access to Climate Finance’s first Annual Report. We are pursuing financing solutions to support long term preparedness for countries’ challenges such as, climate loss and damage, including through innovative new Climate-Resilient Debt Clauses (CRDCs); supporting the IMF’s Resilience and Sustainability Trust; and through the Global Shield. Overall these innovations represent tangible progress increasing the ability of countries to retain their fiscal space and be protected when faced with climate disasters. This is the beginning of the effort to give countries the tools they need to ensure their economies are climate resilient.

We have brought together international support behind country platforms, like the $8.5bn South African Just Energy Transition Partnership (JETP) where G7 partners are mobilising $8.5 billion. Hopefully soon more will be announced including in Viet Nam and Indonesia. These are demonstrating a model for country owned, coordinated, catalytic international support to help accelerate just transitions away from fossil fuels and mobilise investment at scale. The UK has recently announced $5.75m for Egypt’s Nexus of Food, Water and Energy platform.

The UK used the Presidency to drive innovations across the development system to scale private finance, including to help countries issue green and sustainability bonds and guarantees to share risk. The UK’s Room to Run guarantee became operational earlier this month, and will unlock $2bn of climate finance for African countries in a partnership between UK, the African Development Bank, and City of London insurers.

The UK used its Presidency to influence across the international development finance system to finance and mobilise investment in climate and nature with most implementing. In Glasgow MDBs launched a seminal Joint Nature Statement and this week they announced a collective update at the Forests and Climate Leaders Summit.

Momentum is gathering behind efforts to build an increasingly sophisticated, better coordinated and more innovative financial system. The High-level Expert Group on Climate Finance (Songwe-Stern), endorsed by the UK and Egyptian COP presidencies, have published their recommendations; with Rwanda we convened the second Climate and Development Ministerial, where three transformational shifts were proposed. While COP26 President Alok Sharma joined calls from others, such as Prime Minister Mia Mottley, for deeper reform of the financial system, including through implementing the recommendations of the G20 Capital Adequacy Framework (CAF) Review.

To meet the goals of the Paris Agreement, these actions to enhance international support must go hand in hand with efforts to transform the financial system to make it fit for purpose for a net zero, resilient world. That is why the UK is committed to becoming the world’s first net zero aligned financial centre, and the Transition Plan Taskforce (TPT) Disclosure Framework and Implementation Guidance to be launched today, are an important step towards giving businesses and financial institutions the tools and certainty they need to meet their targets.

The world must harness this momentum to accelerate the transformational systemic shifts needed to ensure finance flows towards addressing global development, climate and nature needs. The threat of climate change is turning ever more acute, impacting every country across the world. The benefits of action are only matched by the terrifying cost of inaction.