The Sustainable Finance Long Game

Sentiment around sustainable finance was mixed in the run up to this year’s COP29 in Azerbaijan. 

In October, the United Nations warned that progress on tackling climate change is in a “worse position” than it was a year before, suggesting in a report that global carbon emissions rose faster than average last year and that countries have failed to upgrade their national climate plans.

That report argues that the direction of travel has left earth on track for a “catastrophic” 2.8C of global warming by the end of the century, way off the limited rise of 1.5C aimed for in the Paris Agreement.

Cue COP 29 – and, perhaps unsurprisingly, expectations for significant progress at this year’s meet were somewhat muted – the FT reported, for example, that a number of key business leaders were unlikely to attend the event.

There was a cautious sense of optimism, however – this COP was the ‘finance COP’, with an ambition on the agenda to agree a new global finance goal – the ‘collective quantified climate finance goal’ (NCQG), including a far higher financial target and renegotiated terms, spanning public and private sources of capital.

The creation of a new Climate Finance Action Fund (CFAF) was also announced ahead of the summit, designed to invest in action in the developing world with money for the fund coming from fossil fuel producing countries and companies.

And the Standing Committee on Finance, which assists the COP, had indicated that there were signs of advances in terms of transparency, and greater indications that green finance is having a tangible impact in the economy.

Despite that, the end result was perhaps a little underwhelming. After extended negotiations, the headline agreement was that wealthy countries would provide funding to developing countries totalling $300bn a year by 2035, to help them cope with the effects of the climate crisis.

It’s an increase on the previous $100bn, but the feeling was that this is still not enough – particularly when you consider that, earlier in the talks, it had been agreed that the most vulnerable countries need $1.3 trillion a year to combat the consequences of climate change.

Where there is an investment gap, however, there is opportunity. In its Global Risks Report 2024, for instance, the World Economic Forum (WEF) describes how a nature positive economy is good for the real economy – investing in nature, the WEF says, could unlock $10.1 trillion in economic opportunities annually and create nearly 400 million jobs by 2030.

And investor sentiment remains largely positive – discussions at the recent UK Transition Finance Summit in Dublin, attended by Jersey Finance, highlighted how investment firms were still upbeat on appetite for ESG opportunities. One investment manager speaking at that event, for instance, outlined that ‘Article 8’ financial products had increased over the past few years to now represent some 50% of its total AUM.

Last year, ahead of COP28, I blogged that collaboration and capacity were the two key issues holding up progress on sustainable finance. I’d add ‘consistency’ to that now, to create a trio of ‘c’s. We must keep an eye on the long-game, keep focused on the prize and deliver consistently in the pursuit of progress.

It’s easy to see why progress has stalled. Over 100 jurisdictions now have regulations and policies directly targeting climate finance—a 40% rise since 2020.  That’s good in the sense that it reflects a need to bring clarity to the sector. But it can be overwhelming.

These sorts of hiccups, and the ones we have seen around COP29 this year, must only be bumps on the long road to a better future.

Unleashing private finance is critical if the new aims and processes unveiled at COP29 are to remain achievable. The $300bn/year deal struck at Baku states that that funding will come from “all public and private sources”. This is what Jersey does so well – mobilise private sector capital efficiently, to ensure targets are met. By bringing together its core cross-border investment capabilities, Jersey can help in driving capital to where it’s needed, fast.

In that sense, the need for this sort of scale of capital mobilisation represents a significant opportunity for Jersey. Our strengths as an IFC, in bringing people together to collaborate; in sharing knowledge and resources to boost capacity; and in delivering time and time again the vision to push forward consistently, will be absolutely critical. As an IFC, we are at the hub of this, and we cannot let up.

It’s why we’re continuing to expand our sustainable finance outreach. Next year we will be holding a week long summit dedicated to progress across the sustainable finance spectrum, culminating in our sustainable finance awards, where we will champion and celebrate best practice.

And it’s why we continue to drive conversations, including as part of the UN’s Financial Centres for Sustainability forum (FC4S), and bring industry players together through, for example, our own UN SDG Alignment Tool.