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Financial firms announce $130 trillion in commitments for climate transition, but practical questions loom

Treasury Secretary Yellen hails new pledge by banks and other firms while many environmentalists remain skeptical of impact

Treasury Secretary Janet L. Yellen speaks to climate summit delegates Wednesday in Glasgow, Scotland. (Christopher Furlong/Getty Images)

GLASGOW, Scotland — An international coalition of private financial institutions announced Wednesday that its membership has collectively pledged $130 trillion to convert the global economy to clean energy, as private capital mobilizes to confront the threat of climate change.

Despite the eye-popping pledge by many of the world’s biggest banks, climate experts say the commitment leaves unclear whether and how the trillions of dollars will be effectively marshaled into transitioning the world’s energy production away from fossil fuels.

The Glasgow Financial Alliance for Net Zero — which represents more than 450 banks, insurers and other asset managers in dozens of countries — unveiled the pledge as world leaders in Glasgow prepared for a day of discussions related to financing clean energy development.

The “GFANZ” group is led by Mark Carney, former head of the Bank of England, and Mike Bloomberg, the billionaire financier. Under the pledge, the projects and companies generated by loans given by the financial institutions would be by 2050 “net zero,” meaning they would, in aggregate, not add to carbon emissions.

While much attention has been focused on the climate spending of governments around the world, leaders in Glasgow spent Wednesday pointing to the need for private capital to fund clean energy investment.

The falling price of renewable energy has increasingly made clean energy projects an attractive investment, and private capital has significantly more capacity to fund these efforts than governments alone can marshal. Officials at the Department of Treasury say they have been focused on unlocking the approximately $2 trillion to $3 trillion they say is necessary in private sector investments to achieve a global net-zero economy, compared to the hundreds of billions nations have pledged in government spending.

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“As big as the public sector effort is across all our countries, the $100-trillion-plus price tag to address climate change globally is far bigger,” Treasury Secretary Janet L. Yellen said on Wednesday morning in Glasgow at an event devoted to climate finance. “The private sector is ready to supply the financing to set us on a course to avoid the worst effects of climate change.”

Still, dozens of climate groups have criticized the Glasgow “financial alliance” as a publicity stunt — particularly because the commitment avoids calling for a cessation of financing for the production of carbon-intensive fossil fuels.

Many of the same banks behind the pledge continue to finance the construction or expansion of coal plants, for instance. Environmental groups are adamant that new production of coal, oil and gas must be stopped to avoid the consequences of catastrophic warming. Since the Paris climate accord, large banks have financed more than $4 trillion in fees from the oil, gas, and coal industries, according to Bloomberg News.

“These commitments live and die on how they treat fossil fuels. It’s the elephant in the room that they seem to conveniently ignore,” said Justin Guay, a climate expert formerly at the Sierra Club. “Dealing with fossil fuels is not optional; it’s mandatory.”

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Also unclear is exactly how the trillions in private capital will be effectively turned into clean energy projects, particularly for the developing world. Even if the banks set aside assets to be used for clean energy investments, that capital needs specific initiatives to finance.

The world leaders hailing the pledge recognized the ongoing obstacle. “Questions remain,” Yellen acknowledged. “Will enough investment opportunities materialize to absorb all this capital? How quickly can this reorientation occur?”

Added Carney, the former Bank of England chief also named the United Nations special envoy for climate action and finance: “The money is here, but that money needs net-zero-aligned projects. … This is a watershed. Now, it’s about plugging it in.”

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The Biden administration says it is doing everything it can to help. Treasury officials led a group of financial regulators last month in a new report underlining the risks posed by climate change to the financial system — a move intended to signal to private sector markets that they should shift their investments away from fossil fuel-intensive projects. Yellen has also held several meetings with the multilateral development banks and Treasury officials have said they have sped up the climate-related work at those institutions.

“The billions we are talking about here at COP in public funding — the new commitments being made here — are critically important,” John Morton, Treasury’s chief climate official, told reporters in Scotland on Tuesday. “But the question of how we get to the trillions required to finance the global transition is one that has to involve the private sector as a central player.”

News of the $130 trillion pledge was first reported by the Financial Times.