The UN Climate Change Secretariat on Monday, July 26, 2021 published a Climate Action Pathway for Finance which sets out a roadmap for financial markets and the real economy to align with a sustainable and resilient net-zero emissions future.
Finance has a critical role to play in enabling and accelerating the transition to net-zero economies in accordance with the Paris Agreement goal of limiting global temperature rise to 1.5 degrees Celsius and adapting to the inevitable impacts of climate change.
This role includes pricing carbon to ensure that polluters pay the true cost of their impacts and fully accounting for the value of climate-related risks and opportunities. Developed countries must also deliver on their promise to provide $100 billion annually to support developing countries in taking climate action.
The Climate Action Pathways are a vital part of the Marrakech Partnership tools to enhance climate action and ambition towards fully implementing the Paris Agreement.
First launched in 2019, the pathways set out sectoral visions for achieving a 1.5° C resilient world in 2050, with overarching milestones, and key impacts that need to be achieved to realise them. The other sectors for which pathways have been developed are: energy; cities and other human settlements; industry; land use; oceans and coastal zones; transport; water; and resilience.
Collectively, the eight pathways provide a blueprint to coordinate climate ambition among cities, regions, businesses and investors in the run up to the crucial UN Climate Change Conference COP26 in November in Glasgow.
The cross-cutting finance pathway brings the finance elements of the existing pathways together and sets out how that financing might be achieved.
Putting climate change front and centre in financial decision-making
To reach the goal of net zero by 2050, every financial decision must take climate change into account and financial flows must be consistent with low greenhouse gas emissions and climate-resilient development.
This means that price signals and profit motives will need to be corrected so that the true cost of negative spillover effects are reflected in balance sheets. Private finance has a particularly significant role to play in financing the transition, as it cannot be achieved through public finance alone.
Policymakers, civil society, local government actors, corporates and financial institutions need to take measures today to ensure sectoral breakthroughs by 2030. These include:
- Correcting market failures and closing the valuation gap
- Embracing a long-term investment mindset by setting net-zero targets before 2050 and then embedding meaningful short- and medium-term steps in a credible plan to evolve business strategies to align with a net-zero world.
- Embedding climate-aware sustainable approaches into risk management and incentives by ensuring that markets can obtain and use the data and disclosure that they need to assess risks, while taking advantage of breakthrough technologies.
- Investing at scale in zero-carbon, resilient infrastructure and nature-based solutions to ensure a just and equitable transition away from high-carbon development to zero-carbon resilient infrastructure, as well as investing in nature as a solution so that all economies can grow sustainably.