How global business could be the unexpected COP26 solution to climate change

Despite environmentalists accusing COP26 of “greenwashing,” broad disappointment with the final conference statement as too little too late and an ambivalent Global South, there is still hope for climate change solutions from an unlikely place — global business.

The goal of the Glasgow Financial Alliance for Net Zero (GFANZ), launched in April 2021, is to bring together the financial sector to accelerate the transition to a net-zero economy.

In a US$130 trillion commitment announced during COP26, business leaders — including Mark Carney, the United Nations’ Special Envoy for Climate Change and former head of the Bank of Canada and Bank of England — announced a coalition of banks, insurers, pension funds, stock markets and others from across the financial spectrum aimed at tackling climate change.

GFANZ offers hope because it is taking on climate change from a global rather than a narrow national perspective. GFANZ’s transnational approach recognizes that sustainability requires a whole planet strategy.

Global South hit hard

To date, efforts by nations to fashion climate change solutions have fallen short, in particular with respect to Global North-Global South interactions. The Global South continues to bear the brunt of climate change effects.

A climate change solution resulting from countries acting independently or even multilaterally has not worked. The solutions we need are collective.

The entire world, Global North and Global South together, needs to act like a single state in a co-ordinated move to address climate change. But how can this be done when larger emitters enter and exit their international commitments like a revolving door (in particular, the United States and China), stand on moral arguments for lower compliance (India) or deflect attention from their per capita emissions (Canada and Australia)?

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Trying to reach consensus and legislate solutions at national levels has been uneven at best.

Standards being adopted globally

That’s why GFANZ’s announcement is so timely. The unrelenting march of global business shows that national governments are of declining influence, as highlighted by the adoption of voluntary international standards on everything from the Basel Capital Accords for banking to ISO 9000 for quality management.

There is a transnational sphere that exists beyond individual countries consisting of multinational corporations, think tanks and non-governmental organizations that involve voluntary standards and practices. Adoption of those standards is occurring globally.

Such co-operation is independent of national governments, sometimes even prompting the adoption of transnational standards as national legislation. For example, voluntary banking standards such as the Basel Capital Accords set by Global North central bankers became de facto global standards over time that are also being adopted in the Global South.

GFANZ is strikingly similar to the adoption of Global North financial standards in the Global South. By offering guidance on the use of huge sums of money in an environmentally sustainable manner, global business is poised to create a voluntary financial standard transnationally rather than waiting for governments to act.

Four responses

Recent research has identified four distinctive types of responses of the Global South in responding to Global North financial standards: reformist (highly motivated), disobliging (talk not action), cosmetic (faking it) or instigative (activists agitating for change from within).

Reformist behaviour is about doing the right thing. When governments use carrot-and-stick approaches to enforce environmental standards, they prioritize global interests rather than short-term national agendas. If all of the major carbon- emitting nations were reformist and were setting and enforcing ambitious targets, COP26 would have been a resounding success. But that was not the case.

Disobliging behaviour represents lower adoption of standards nationally. Here, there may be a motivation to take action, but this desire is negated for fear of regulatory or political reprisals from unsupportive national institutions.

Cosmetic behaviour is the financial equivalent of environmental greenwashing — an attempt to make consumers believe your company or government is doing more to protect the environment than it really is.

It involves both government officials and business adopting the rhetoric of adoption of standards and masking the lack of any substantive change. The spotty implementation of the Paris Agreement on climate change would be an example.

Instigative behaviour, exemplified by GFANZ, is when financial institutions wanting real change leapfrog government inaction by acting transnationally. Change is instigated by public officials being responsive to transnational business behemoths. Local regulators and political elites then benefit from the advantages afforded to national officials who co-ordinate with transnational partners, whether by choice or necessity.

While reformist nations do the best they can, and deserve support for their tenacity, GFANZ offers a complementary transnational solution for those who want to bring about change regardless of government positions. The climate change strategy then becomes both top-down from the reformist national government and bottom-up from instigative financial institutions acting transnationally.

The next step: GFANZ must ensure that positive outcomes aren’t eclipsed by inadvertent colonial behaviours as Global North wealth is invested in the Global South. But with both reformist and instigative actions, the transition to a net-zero economy might be one step closer.

F. Haider Alvi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.