Here’s how you might pick up the bill for COP26 green promises

World leaders are attending COP26 to discuss climate change. Here’s how these green promises could end up affecting your finances.

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The climate emergency is once again hitting the news as world leaders meet in Glasgow for COP26 to review their green progress and discuss new targets.

So far, there’s been disappointment regarding current figures and excitement over new promises. But who is going to be picking up the bill for all these bold pledges? Read on to find out how this jolly green giant climate summit could end up affecting your finances.

[top_pitch]

What is COP26?

With a name sounding like a retired RoboCop model, you’d be forgiven for wondering what this event is even all about.

COP26 is the 26th UN Climate Change Conference. The ‘COP’ refers to it being the ‘Conference of the Parties’. It’s currently taking place in Glasgow, and there’s a real motley crew of world leaders in attendance. The whole point is to discuss where we’re at in terms of meeting climate goals and see what we need to do moving forward.

Has anything been decided so far at COP26?

So far, we’ve heard a lot about rising temperatures, plans to become carbon neutral, and the year by which we’ll aim to stop hacking down rainforests.

According to the BBC, here are some of the main points agreed so far:

  • Richer nations are to better support poorer countries. In order to do this, former Bank of England governor Mark Carney is attempting to change the way money flows by redirecting trillions of investment to greener activities.
  • Almost £14 billion (of public and private money) is to come from more than 100 countries to reverse deforestation by 2030.
  • Methane emissions are to be cut by 30% by the year 2030. But the biggest emitters China, Russia and India haven’t agreed to this.
  • New market agreements for emerging technologies will be created. This can lead to lots of countries working towards cleaner tech rather than trying to undercut each other
  • In the UK, big companies and financial institutions will have to prove how they plan to hit climate targets.

This all sounds positive, but as most nations already have mountains of debt, who’s going to be paying for all these initiatives?

[middle_pitch]

How might you end up paying for these COP26 promises?

I’m all for a greener planet and reducing my carbon footprint. But some of these ambitious goals are going to take a lot of money. But how could some of these promises end up affecting your finances?

Higher energy prices

The Bank of England has said that some of the COP26 carbon-cutting measures could cause inflation and push up prices. Right now, gas prices are soaring because we still use a lot and there’s been a lack of investment and innovation in the industry.

Transitioning to cleaner energy will likely mean high energy prices continue as we move away from fossil fuels.

Living costs

Along with more expensive energy bills, there’s likely to be more price increases in your daily life. 

Food costs will continue to rise if deforestation is reduced. That’s because a lot of deforestation is carried out to create more farmland to keep up with our food consumption. Stopping the destruction of the rainforests is superb. But it will mean you’ll end up paying more for your groceries. Especially if you’re a meat-eater, as most forest clearing is done used to support livestock.

The cost of clothes may also increase as production can be very energy- and water-intensive. So it might be worth checking out vintage stores and second-hand marketplaces like Depop.

Investing

A big chunk of the UK economy is made up of energy and mining businesses. So if you invest in the FTSE 100, it’s likely a lot of your money is going towards companies in these industries. If they take a big hit, so might your portfolio.

You can get ahead of this by refocusing your investing. This could be by buying shares in greener companies or adopting more of an ESG investing approach. However, many firms in the green space aren’t proven money-makers and may not succeed as tech develops.

Saving

Rising inflation and low interest rates are a bad one-two combo for savers. Even the best savings accounts offer interest rewards way below the level of inflation.

If you want to be a green saver, there will hopefully be more initiatives like the NS&I Green Savings Bond hitting the market in the near future. But saving this way will likely mean a reduced rate of return on your money (unless the government subsidises these kinds of bonds more).

Businesses

Until things become more efficient, increasing energy prices could make business costs higher.

Also, with lots more reporting and tracking of climate targets, businesses may face the added cost of taking measures to reduce their carbon footprint. They may also need to provide evidence of the steps they’ve taken under the new COP26 rules.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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