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A new set of principles will soon make it possible to measure progress on climate commitments and raise ambition across the whole financial sector
There is an old French saying, “nous sommes nos choix,” or, in English, “we are our choices.” But will the sum total of our choices add up to the future we need?
Recently, world leaders gathered virtually at the Leaders Summit on Climate. With the global COVID-19 pandemic and worsening climate crisis, these leaders recognize the need for sustainable recovery and are increasingly committing to ambitious action. Last week, the US vowed to cut emissions in half by 2030 and the EU reached a deal to become “climate neutral” by 2050.
Meeting these targets requires across-the-board action, including in the financial sector, which faces the challenge of meeting the Paris Agreement’s call to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” Many groups, including finance ministers, central banks, development banks, asset owners, asset managers, and commercial banks, have reacted by forming coalitions for sustainable finance, committing to align finance with the Paris Agreement and target net zero emissions by 2050.
Yet, these financial actors are working mostly in silos and the credibility of commitments can be difficult to assess. The sum total of their individual commitments would almost certainly not add up to a net-zero sustainable trajectory: the pace of change and impact on the real economy is likely to be too slow, with lock-in of high carbon assets and serious unmitigated climate risks far before 2050.
This gap is particularly evident when looking at the investment levels needed to align with policy targets. Climate Policy Initiative estimates that just over USD 600 billion was spent on climate action globally in 2019, compared with the IPCC estimate that USD 1.6-3.8 trillion will be needed annually within the energy sector alone to stay within Paris goals.
The COVID-19 crisis has also shown us that we need a more holistic framework to address social issues, employment, and resilience. Actors in developed economies, in particular, have a greater responsibility to support and accelerate action in developing economies, where debt burdens and borrowing costs are increasing in parallel with increasing social and environmental vulnerability. It is critical that the current discussions with the International Monetary Fund and World Bank around a reallocation of Special Drawing Rights for climate and Sustainable Development Goal investment reach a positive conclusion.
There is therefore a need to increase the ambition, credibility, and accountability of commitments, and provide the connective tissue between the various efforts to ensure the race to zero stays on course and goes at pace.
There is appetite for this.
A coalition of financial sector leaders will soon launch the “Principles for Sustainable Finance Integrity.” These Principles were developed by leaders from each segment of the financial ecosystem, including leading insurers, commercial banks, development banks, asset managers, NGOs and government representatives across Asia, Africa, Europe and the Americas.
This is the first time a framework provides a way to measure progress and raise ambition across the full financial sector. It is also the first time that a framework for sustainable finance details both minimum and leadership benchmarks, creating guardrails for accountability as well as a common vision for creating the lasting transformation needed.
However, this is only the start. The Paris Agreement created a framework that allows for a “race to the top,” taking on the need for more coordinated action and providing a system for accountability. The Principles for Sustainable Finance Integrity do the same.
As we head to COP26, there are opportunities to start bringing together the pieces of the financial and economic puzzle. Ultimately, COP26 will be the moment of truth for Paris Agreement implementation, and commitments are not enough. We need clarity on how to translate these commitments into reality in investments.
As we head to this moment of truth, I urge leaders to think big. If we work together, breaking through silos and increasing accountability to commitments, we can ensure the sum of our choices adds up to the future we want: One that works for everyone.
Laurence Tubiana is CEO of the European Climate Foundation. She was France’s Climate Change Ambassador and Special Representative for COP21, and as such a key architect of the landmark Paris Agreement.
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