When we close our eyes and think of a net-zero world, most of us probably see rows of wind turbines spinning above the oceans; landscapes blanketed with solar panels; electric cars humming along the roads. But for all of that to be possible, the global financial system will need to change how it operates.
At COP27, an agreement was reached calling for a fundamental change in the financial system and investors and companies play a critical role in achieving these goals. The conference underlined the need for action on corporate climate pledges, the critical importance of data and a series of initiatives designed to spur both public and private investments to further help developing countries cut GHG emissions and adapt to a warming world.
We have highlighted some key developments impacting companies and investors that are worth taking note of.
Climate Commitments
Climate commitments from companies and financial institutions need to be backed up by investments and actions, according to the UN’s High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities. In their report that aims to prevent dishonest climate accounting, the following recommendations were cited,
- Net-zero pledges should contain interim targets measuring progress along a 1.5°C pathway five years at a time, reaching net-zero by 2050 or sooner; and targets should account for companies’ complete Scope 1, 2 and 3 emissions.
- Net-zero pledges should include specific targets aimed at ending support for fossil fuels; companies and financial institutions should disclose their affiliations with trade associations.
- Companies may use high-integrity carbon credits to mitigate emissions beyond their value chain but cannot count such credits towards interim targets.
- Financial institutions should have a policy of not investing in or financing businesses linked to deforestation.
- Financial regulators should develop regulations and standards governing net-zero pledges and transition plans and disclosure, starting with companies, including private and state-owned enterprises and financial institutions.
Data for Decision-Making
The Net-Zero Data Public Utility (NZDPU), a central repository of climate transition data, is expected to be up and running in 2023, with four key goals:
- To be a trusted central source of verifiable data, with an initial focus on standardized data for GHG emissions across all emission scopes.
- Augment transparency and align with global regulatory frameworks and standards.
- Open and available to the public at no charge.
- Will be a part of the global climate action portal hosted by the United Nations Framework Convention on Climate Change
Carbon Markets
- U.S. Climate Envoy John Kerry unveiled a system of carbon credits designed to finance the clean-energy transition in developing economies. This Energy Transition Accelerator will aim to catalyze private-sector investment to phase out coal plants and speed investment in renewable energy.
- The Global Carbon Trust, a new initiative sponsored by Bloomberg Philanthropies aims to improve the infrastructure for voluntary carbon credits. This will create standardized contracts for carbon credits, embed third-party monitoring and verification of project performance, and provide arbitration and compensation mechanisms for projects that fail to meet targets.
- Another new initiative aims to spur the voluntary market for high-integrity carbon credits in Africa. The African Carbon Markets Initiative aims to produce 300 million carbon credits annually by 2030 worth an estimated USD 6 billion that would be distributed among local communities.
- Framework to guide the development and purchase of blue carbon projects and credits. Credits for carbon captured by ocean and coastal ecosystems should safeguard nature, empower people, employ the best information and carbon accounting principles, operate contextually and locally and mobilize high-integrity capital.
Climate-Related Disclosure
- CDP said it would use the climate-disclosure standard being developed by the International Sustainability Standards Board (ISSB) in its corporate environmental disclosure platform starting in 2024. The organizations said the decision by CDP would speed the adoption of the ISSB standard, which is being finalized.
- The ISSB unveiled a partnership framework designed to support climate-investment capacity in developing and emerging economies. The framework aims to support investors, regulators, multilateral institutions and other market participants by providing high quality, comparable and timely information or investment decisions in priority jurisdictions, which the ISSB said it aims to identify between now and this April.
What’s next?
One thing is for sure, there is no quick fix. We need an economy that isn’t putting profit above people and the planet – we need our businesses to become a force for good, balancing people, planet and profit.
This is exactly why I started Maanch in 2018, to create a fairer and sustainable future for all by leveraging technology & insights to deliver more impact per investment. Maanch is committed to bringing people together to make a change.
While we wrap our heads around the outcome of COP 27, here are top reports which explicitly elaborate on the severity of climate change and the damage it will cost to our economy and society.
- The coldest year of the rest of their lives – UNICEF
- Extreme Heat – IFRC
- State of Climate Action 2022 – Climate Action Tracker
- Emissions Gap Report 2022 – UNEP
- Adaptation Gap Report 2022 – UNEP
- Climate and Development: An Agenda for Action – World Bank
- The Road To COP27 – Responsible Investor
- World Energy Outlook 2022 – Analysis – IEA
- Breakthrough Agenda Report 2022 – Analysis – IEA
