The UN Climate Change Secretariat, the entity tasked with supporting the global response to the threat of climate change, announced the release of Climate Action Pathway 2021, aiming to provide a roadmap for financial markets to align with global net zero goals and finance the transition to a 1.5 degree future.
Among the key goals of the roadmap are ensuring that financial decisions incorporate climate change considerations, including adjusting price signals and profit motives to account for negative spillover effects, utilizing tools such as carbon pricing. The roadmap also calls for private finance to help drive capital flows to areas vital investment areas including clean energy and infrastructure.
Climate Action Pathways highlights five impact areas for financial markets to help reach global climate goals. These include ‘Closing the valuation gap,’ aiming to correct market failures and unpriced externalities; ‘Tackling the ‘tragedy of the horizon’ and short-termism,’ lengthening investment and strategic horizons; ‘Creating systemic transformation tools and building capacity,’ including the creation of new market norms and taxonomies to help enable climate-aligned investment; ‘Improving incentives and risk management,’ promoting engagement with business to acquire relevant and material climate-related data and adopting financial incentives to drive change, and; ‘Zero carbon, resilient infrastructure and real assets,’ ensuring capital flows towards a just transition away from high carbon resources, and unlocking finance for infrastructure, clean energy and climate solutions.
Each of the action areas under the roadmap are presented with a set of near, mid and long-term milestones. Near-term goals include ending fossil fuel subsidies and increasing integration of sustainability into building and development standards by 2021, and developing standardized accounting for climate risk and resilience, along with widely agreed targets and taxonomies by 2025. Interim goals include aligning all board and executive remuneration with net zero targets and climate risk management by 2030. 2040 goals include the broad realignment of markets to drive all sectors, including hard to abate sectors, to achieve net zero by 2050, and to have climate risk, adaptation and resilience embedded in the financial system.
According to the Vision Statement presented in the report:
“By 2050, financial markets, institutions and systems are in place to support and fund a resilient zero-carbon economy and society, ensuring that temperature rise remains limited to 1.5 °C. This market alignment has been achieved through corresponding alignment implemented in all areas of government, business and human settlements, in partnership with civil society. As a result, flows of capital have been redirected to sustainable and climate-resilient development.”
Click here to access the UN’s Climate Action Pathway.