What Will Bridge The Gap Between G7 Climate Ambitions And Action?
Sand Martin Wood in Faugh near Carlisle, Cumbria, UK, was acquired by the carbon offset company ... [+] co2balance in September 2006 (Photo by Ashley Cooper/Construction Photography/Avalon/Getty Images) Getty Images  At the G7 summit the White House announced the Build Back Better World (B3W) Partnership, a climate-friendly initiative intended to fund the $40 trillion infrastructure gap in low- and middle-income countries. The Initiative joins a swathe of ambitious commitments to climate action - the question however is how to reach those targets on the ground. While laudable in its goals there are some challenges to overcome if the B3W Partnership is to prove effective in achieving its multiple  and rather vague - aims, especially if it is to remain consistent with the Paris Agreement. Health, digital technology and security and the impact of gender inequity have an impact on economic growth and security, which is why they are focal points of B3W. Tackling climate change as well, especially considering the role of climate risk as a risk multiplier for health, poverty, education and more, means addressing the structures, worldviews and perspectives which underpin current market operations. It's difficult to see how targets on climate can be reached if there is not a fundamental reassessment of how we measure growth, and the structural issues in current systems. The B3W Partnership was one of several announcements which, combined, are intended to show that the G7 (which together are roughly responsible for 20% of global emissions) are committed to action on climate change and green growth. There were commitments to a range of other actions including: commitment to net zero by 2050, the removal of international coal finance (with up to $2 billion to transition from reliance on coal to other forms of energy); providing better and faster access to finance for developing countries; the UKs launch of its 500 million Blue Planet Fund and endorsement of the Nature Compact. Prior to the launch of the Summit, finance ministers also agreed to support mandatory reporting on climate risk. The devil though, lies in the details - of which there are few. Commitments to net zero by 2050 are increasing, with 67 countries having announced their ambitions, but rarely do they have the policies or legislation that would facilitate the achievement of that goals. Policy makers around the world are going to need to act together if the necessary scale of the transition is going to be achieved. The question is whether or not policy decisions are going to be enough on their own, especially given the power of the status quo. Concern about climate risk - physical, transition and liability  is fundamentally changing the market paradigm. Externalities such as emissions, or even social damage, are beginning to be factored into investment decisions by many leading investors, banks and policy makers. Re-insurer Swiss Res April 2021 report on the economics of climate change suggests that the costs of climate change could be greater than COVID. The difficulty for policymakers is that COVID affected everyone in an immediate way, while climate impacts are slow to build and often happen 'far away'. If Swiss Re is right and climate impacts could see the global economy lose around 10% of its value by 2050, that is a problem that will affect everyone. Arguments about the cost of action versus inaction have slowed the process for decades. Yet the European Technology Innovation Platform for Wind has calculated the cost of a future net zero energy system has been estimated as no more as a share of GDP than our energy system costs today - 10.6% of GDP. In broader social terms, such decarbonisation is also expected to be significantly cheaper when factoring in the costs of externalities such as air pollution, water consumption, loss of biodiversity, land use etc. This is not a straightforward swap however, as entire industries may be wiped out as new ones develop and thrive. Another argument has been about where the funds will come from but today there are unquestionably sufficient funds for the low carbon transition. ESG investment continues to grow rapidly, as research shows that ESG funds outperformed not just during COVID but for 10 years before the pandemic. Differences in methodological approaches mean the size of the market has been reported as anything from $20-106 trillion. It seems unlikely that that many investors have grown a social conscience, but its indicative of the direction of travel. Greenwash is a concern - there are a lack of consistent standards meaning that it can be difficult to compare like-for-like. Growing concerns about greenwash mean that clarity, transparency and accountability are going to be crucial to the markets continue growth. Certainly climate risk is changing the cost/benefit profile of many investors. Central banks are increasingly stress testing on climate change, and investors are demanding transparency on climate risk. Mandatory reporting on such risk is already set to become mandatory in the UK and the G7 has committed to follow suit. Many see the private sector as having outstripped the public sector in its approach. Pension funds and banks are being pressured by shareholders. May 2021 saw Exxon forced to accept climate friendly board members, while Chevron shareholders approved a strategy to address scope 3 emissions  those from its customers. Liability is also a concern. The Dutch court recently demanded that Shell cut its emissions by 45% by 2030  a far stricter timetable than had been proposed by the oil major itself. It was the first case where a court has basically stated that a corporation has a duty of care in guarding against the harm of climate change, not that Shell had done anything wrong. With around 1800 climate related court cases in place around the world, the courts may have an important role to play. Policy making is always a challenge, because there is a big difference between setting ambitious targets and putting the necessary frameworks in place. When France tried to implement a fuel tax, the gilet-jaunes led months of strikes. In the energy industry, fossil fuels still often have priority access to the grid, significant subsidies to protect jobs and industry and indeed, considerable amounts of COVID support went to energy intensive industries. Rebecca Williams, Head of Policy and Regulation at the Global Wind Energy Council has said that to achieve the changes we need, well need a climate emergency approach to policy making.  The issue is that tackling climate change is not really a scientific problem but rather a political one. A new economic paradigm needs to replace the current exploitative model with a more regenerative approach but politicians will only support actions that investors, companies and voters support. As John Elkington found of Volans said, A seismic shift is happening in how society views fossil fuels and what we now need is a seismic shift in how society views the market. There are strong signals that that shift is beginning. The Investor Agenda, representing 457 investors with over $41 trillion under management, just issued a statement urging a 'race to the top' approach to climate policy. As investors, economists, corporations and activists continue to push for change, whether we can achieve the necessary transition is, in the end, up to us.