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Climate Finance

by | May 19, 2022 | ESG

Introduction

Climate finance refers to local, national, or international money derived from public, private, and alternative sources of funding to support climate change mitigation and adaptation efforts. The Convention, the Kyoto Protocol, and the Paris Agreement all ask for financial assistance to be provided by Parties with more financial resources to those with fewer and more susceptible resources.

This acknowledges that countries’ contributions to climate change, as well as their abilities to avoid and manage its repercussions, differ greatly. Mitigation requires climate financing because large-scale expenditures are necessary to considerably cut emissions. Climate finance is also vital for adaptation, as large financial resources are required to adjust to the negative effects and mitigate the impacts of climate change.

According to the Convention’s premise of “common but differentiated responsibilities and separate capacities,” rich country Parties have to offer financial resources to help developing country Parties in executing the UNFCCC’s objectives. The Paris Agreement underlines developed nations’ duties while, for the first time, inviting voluntary contributions from other Parties.

Developed nation Parties should also continue taking the lead in mobilizing climate finance from a wide range of sources, instruments, and channels, recognizing the critical role of public funds, through a variety of actions such as supporting country-driven strategies and taking into account the needs and requirements of developing country Parties. Such climate money mobilization should be a step forward from prior efforts.

Climate Finance

Photo Source: Iberdrola

Climate Aware Investing

Governments all across the globe are attempting to reduce global warming by aligning their economies with the Paris Agreement of 2015. (COP 21). This shift has gathered pace behind low-emissions growth, with large corporations adopting carbon-neutral promises and green bond issuance on the rise. This creates both hazards and possibilities for businesses – as well as for investors.

These trends are affecting how we analyze and evaluate firms and sovereigns. Climate has emerged as the main subject in the realm of environmental, social, and governance (ESG) analysis, and we have long felt that successful ESG investment identifies the most sustainable enterprises, which can then provide more sustainable outcomes.

The “climate-aware” funds we analyze reflect a wide range of ways to fulfilling diverse investor demands and preferences, such as divestment from fossil fuels or engagement in carbon solutions. Climate finance goes into the worldwide landscape of climate-aware funds in the article “Investing in Times of Climate Change.” There is a need to map out the items that fall into each category, investigate how effectively funds deliver on their promises and show investors how to evaluate the efficacy of these products.

Climate Risk and ESG Investing

Climate-aware investing was such a huge trend that every single investment choice we make would have to consider the climate effect, in terms of the influence of the investment decisions on the business model. How can all of these firms’ business models be adjusted to release less carbon?

As it turns out, these tendencies toward climate-friendly investment decisions are part of a bigger movement known as socially responsible investing or sustainable investing, which is this endeavour to invest with a focus beyond the basic financial and performance expectations for companies’ portfolios. We wish to make a difference in the world. These practices are now linked to the growing usage of so-called ESG Indicators.

If you look at the climate finance investors and ask them again, more exactly, the aspects they care about, you’ll notice that they’re looking at things like carbon footprint, climate change, and renewable energy. Climate change is intimately tied to the top three indicators. In a nutshell, climate change is part of a worldwide trend known as ESG.

Climate change is likely the most essential component of investors’ willingness to make a beneficial influence on the planet within that global trend. Surprisingly, there is a surge in interest in so-called sustainable investment. Consider the commitment of the United Nations Principles of Responsible Investing, often known as the PRI, Principles of Responsible Investing, an UN-led project.

Expected Trends in Carbon Accounting

Today, 80 per cent of the world’s top-earning corporations report on sustainability, a topic that many previously thought was optional. As many big businesses strive for carbon neutrality, they are looking for platforms that can help them monitor, control, and offset their carbon emissions.

So far this year, carbon accounting and offset marketplaces have attracted over $100 million in equity capital across 15 transactions – both record highs – to fulfil increased demand from corporations seeking to manage their emissions.

Outside of the energy and chemicals industries, big tech is making strides toward more stringent carbon-reduction targets. Microsoft, for example, is collaborating with offset marketplace Puro. Earth to reduce its emissions, while Apple just announced a $200 million fund with Conservation International to engage in forest planting and other carbon-reduction activities.

Corporates are searching for digital technologies to help them control emissions more efficiently and comprehensively. While emissions tracking is often associated with tracking greenhouse gases generated directly from facilities and supply chains, businesses must also address emissions at a finer granularity. This entails tracking indirect emissions from company operations, such as CO2 emitted from commercial aircraft and the heating and cooling of office buildings.

Nature-based offsets, such as forest planting, wetland restoration, and sustainable farming, are widely used in carbon offset markets. NCX, for example, functions as intermediaries between corporations and forest developers, whereas Nori facilitates transactions with farmers whose sustainable agricultural methods store carbon.

Nature-based offsets, on the other hand, encounter several obstacles. Forests, for example, take several years to mature, and it is impossible to determine how much CO2 they absorb. Despite obstacles such as fire devastation and double-counting, planting trees remains an essential aspect of climate change mitigation and climate finance.

Carbon Accounting trend for Sustainable Management

Carbon Accounting trend for Sustainable Management

The Framework of Climate Disclosures

The Climate Risk Disclosure Initiative was founded in May 2005 by 14 top investors and other groups around the world to increase business disclosure of the dangers and possibilities posed by global climate change.

The CRDI Steering Committee created a draught Framework for climate risk disclosure and distributed it to investors, firms, climate finance analysts, and other professionals for assessment. The draught has received feedback from more than 50 reviewers. As a consequence of the expert feedback, the Steering Committee significantly revised its first draught.

This worldwide Framework was developed by investors to properly explain investor expectations about the elements of successful corporate climate risk disclosure. They requested the CDP and the GRI to join since these efforts offered the best voluntary reporting frameworks for providing climate risk information.

Investors demand climate risk disclosure to enable them to assess a company’s risks and possibilities, and they highly want it to include the following elements:

  • Emissions: Companies should report their overall greenhouse gas emissions as a vital first step in tackling climate risk. Investors can use this emissions data to estimate the risk that firms may suffer as a result of future climate change policies.
  • Strategic Climate Risk and Emissions Management Analysis: Investors are seeking research that identifies firms’ future climate-related issues and possibilities. As a result, investors are looking for management’s strategic understanding of climate risk, as well as a clear and plain declaration regarding the consequences for competitiveness.
  • Climate Change Physical Risk Assessment: Climate change is causing a slew of physical repercussions, many of which will have far-reaching consequences for businesses and their investors.
  • Regulatory Risk Analysis: As governments begin to address climate change by enacting new policies that restrict greenhouse gas emissions, corporations with direct or indirect emissions may face regulatory risks with substantial ramifications.

Pathways Used by Companies for Climate Pledges

The Climate Pledge is a call to action for companies and organizations to take collective action on the world’s largest challenge and work together to create a safe and healthy planet for future generations.

Amazon and Global Optimism co-founded The Climate Pledge in 2019, a pledge to achieve net-zero carbon emissions by 2040. Since then, an increasing number of prominent corporations and organizations have signed The Climate Pledge. These signatories are crucial in encouraging investment in the development of low-carbon products and services.

The Climate Pledge is a cross-sector group of businesses and organizations working to tackle the climate catastrophe and the obstacles to decarbonizing our economy.

The Climate Pledge, which brings together people who are willing to go the furthest and fastest, calls on signatories to achieve net-zero carbon emissions by 2040—ten years ahead of the Paris Agreement.

Signatories to The Climate Pledge agree to the three principles outlined below:

  • Regular Reporting: Emissions of greenhouse gases must be measured and reported on a regular basis.
  • Carbon Emissions Reduction: Implement decarbonization plans in accordance with the Paris Agreement through business changes and innovations such as efficiency improvements, renewable energy, material reductions, and other carbon emission reduction measures.
  • Credible Offsets: Take steps to offset any residual emissions with extra, quantified, actual, long-term, and socially beneficial offsets in order to achieve net-zero yearly carbon emissions by 2040.

Climate Pledge by Amazon: https://www.aboutamazon.com/news/sustainability/the-climate-pledge-announces-nearly-100-new-signatories

 

Author

  • The author has done a master's in Environmental science and is currently working as chief Environmental Advisor with New Delhi State Government.

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