Environment ministers have long taken center stage when it comes to the annual United Nations climate change negotiations.
But a growing number of nongovernmental groups and multilateral organizations want finance ministers to take on a larger role at this year’s 26th Conference of the Parties (COP26), which kicks off Oct. 31 in Glasgow, Scotland.
“Governments must reflect nature’s true value in all policies, plans and economic systems,” U.N. Secretary-General António Guterres said in a speech earlier this month to a low-profile group called the Coalition of Finance Ministers for Climate Action. “As Ministers of Finance, you hold the key to success for COP26 and beyond.”
In other words, they hold the purse strings.
“We will not tackle climate change successfully if it’s left only to environmental ministers,” said Helen Mountford, vice president of climate and economics at the World Resources Institute. “The finance ministers are the ones who control the budget and taxation policies and are both able to put in place the right taxes, adjust subsidies and put in place direct government investments.”
The notion that finance ministers have not filled central seats at the negotiating table may seem surprising, but their increasingly key role reflects a recent shift in the global debate: moving from diagnosis of the problem to solving it.
Environment and foreign affairs ministers have typically led negotiations during the U.N.’s annual climate gathering.
Looking back over the last three decades, this made sense. Diplomats negotiate with foreign countries on global problems, and environment ministers handle environmental problems.
Climate change is the world’s biggest environmental problem. Ergo, environment ministers and diplomats were put in charge.
But unlike most environmental problems and foreign affairs, climate change permeates virtually all parts of the global economy, on top of the physical harm it does to our society and environment through more extreme weather. The solutions to climate change must come with economic opportunity and limiting economic harm to consumers.
This realization, while known to climate-change experts for decades, has begun to reverberate throughout all areas of government and the finance industry in recent years.
As one barometer for change take BlackRock, the world’s largest asset manager. It has been steadily ramping up its rhetoric and action since founder and CEO Larry Fink first highlighted climate change as a financial risk in 2020 in his highly anticipated annual letter to chief executives.
As for the Coalition of Finance Ministers for Climate Action, that was formed in 2019 to serve as an information-sharing group. It’s convened by the World Bank and the International Monetary Fund.
Finance ministers lack knowledge on climate change, but they have power. We want to increase their knowledge so they can use their power. Nothing important is going to happen unless they’re on board.
The fact such a coalition exists is promising, but it also highlights the basic fact that finance ministers aren’t central to climate negotiations. If they were, they wouldn’t need a coalition.
The 2019 U.N. climate conference in Madrid, Spain, was the first time finance ministers went to the annual confab, according to Carter Brandon, a senior fellow at WRI, one of a couple of dozen partners of the coalition.
The coalition plans to hold an event in Glasgow hosted by Rishi Sunak, United Kingdom Chancellor, which will “highlight the role of Finance Ministries in mainstreaming climate and environment into economic policy,” according to a spokesman for the coalition.
About 65 countries are currently members, which is double from 2019. But some of the world’s largest-emitting nations aren’t members, including China, Australia and Middle Eastern nations. The United States joined shortly after President Biden was inaugurated.
“They lack knowledge on climate change, but they have power,” Brandon said of finance ministers. “We want to increase their knowledge so they can use their power. Nothing important is going to happen unless they’re on board.”
Indeed, the world has seen a lot of rhetoric pledging goals for reaching net-zero greenhouse gas emissions by 2050, but little actual policy has been advanced to achieve those goals.
If achieved, these goals would be broadly in line with the Paris Agreement’s ambitions, which is to limit the Earth’s temperature rise to 1.5 degrees Celsius over the next century compared to pre-industrial levels.
Developed countries also have not followed through with nearly enough money to fulfill their pledge of $100 billion to help developing countries meet their climate goals, which Guterres identified as a key challenge for COP26.
The primary reason for the gaps between rhetoric and action boils down to cost, sometimes only perceived but sometimes real, of shifting from cheap oil, natural gas and coal to cleaner energy sources, which in many cases are still more expensive than their dirtier counterparts.
“We cannot afford to fail,” Guterres told the finance ministers’ coalition in his Oct. 12 speech. “The world needs your leadership.”
Note: BlackRock is a partner with Breakthrough Energy’s Catalyst program.