COP 27 #3 - It's implementation time!

November 14, 2022

The science remains unchanged: 1.5°C is a limit not a target! To build a resilient global economy we need a system-wide transformation. Incremental steps will not lead us to decarbonized power and transport systems or build on more circular consumption of resources. The climate crisis needs action, and it feels like we are still talking about what should be done.

To help the society make this transition, alignment and collaboration between governments, companies, and the financial industry is requested.

Politics need to step up

This year’s UNEP “emissions Gap Report, has assessed Paris agreement signatories UN pledges. Their National Determined Contribution plan covering Greenhouse Gas emission targets and measures with the actual policies in place. The best-case scenario would see nations fully implementing their UN pledges towards net-zero goals and point to a 1.8C rise. Unfortunately, this scenario is currently not credible. Existing policies point to an increase of 2.8°. The gap is not getting filled.

The International Energy Agency made it clear: investments in new fossil fuel supply, deforestation or other environmental destruction are entirely incompatible with net-zero commitments. Having said that the situation is complex when planning energy projects backing. We are still addicted to fossil fuel and our urgent short-term needs – inflation; economic recovery, reducing reliance on Russian fuel – are not necessarily aligned with long term net zero pathways.

We need governments, starting with the world’s most advanced economies, to uphold their commitment to keep global temperature rise to 1.5°C. Positive signals came from the EU, where we expect its 2030 target for renewable generation to step up from 40% to 45% and the recent US Reduction Act. Currently the most significant US climate legislation, which should provide support the US energy transition. But we need to involve emerging markets as well.

Companies are a key player

There is a huge discrepancy between climate commitments and concrete actions. Though 80% of global emissions are now covered by net-zero pledges, many are not supported by credible action in the short-term. For too many companies zero pledges are made without seemingly changing anything in their business models. It seems easy to sign up to long-term climate while failing to take appropriate measures.

As industry or sector base roadmaps are being established. Details on the pathway to deliver on these net-zero pledges are necessary to provide companies with clarity on green capex needed. It will provide a credible proxy to identify companies with a real transitioning plan.

The role of finance

There will not be any sustainable future without a sustainable finance system.

Adequately assessing and factoring the costs of physical and transitional risks in companies’ valuation and perspective is key.

On the other hand, technology, and innovation to support this transition exist and need to find their way to the market. They offer interesting investment opportunities, but it is also our responsibility to mobilize sufficient capital to bring these climate solutions at scale.

Let’s not give up, difficult does not mean impossible. Recent history shows that human have the capacity to innovate and solve immense challenges when we work together. The technologies exist and our destination is clear. Although, the odds of staying at 1.5 degrees are estimated to be between 1% and 10%, every fraction of a degree matters. As a financial system player our contribution is key.

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