Global Stocktake’s ‘shift the trillions’ call turns climate spotlight on private sector

THE first progress report of the 2015 Paris Agreement climate pact highlights the important role of the private sector for a “whole-of-society” approach to curb global warming, industry observers told The Business Times.

“From a finance point of view, from a corporate point of view, there are some really important signals in here,” Thomas Tayler, head of climate finance at insurance company Aviva, said shortly after the Global Stocktake report dropped on Friday (Sep 8).

He said the multi-year trend of the United Nations climate-change conferences – known as Conferences of the Parties, or COPs – has been an increasing emphasis on everybody playing a part, not just governments.

This year’s conference, COP28, kicks off in Dubai in November, and will rely on the Global Stocktake as a key signpost for climate negotiations.

The new report found that financial flows need to be consistent with a pathway towards low greenhouse-gas emissions and climate-resilient development. To achieve this, increased private sector engagement is needed. It also mentioned the need for a “systematic approach” to unlock and redeploy the trillions of dollars needed to close the emissions gap.

Developing countries’ nationally determined contributions (NDCs), or the self-defined climate pledges made by signatories of the Paris Agreement, reflected a need of at least US$5.8 trillion to achieve their commitments, the report noted.

Of that amount, US$502 billion was identified as requiring international sources of finance and US$112 billion as being sourced domestically.

Yet, that covers only 11 per cent of identified financing. There was no information on sourcing for the remaining 89 per cent.

The report also stated that while public finance may be deployed to high-impact investments and crowd in private finance, global and domestic capital markets are “likely to be the primary source” for scaling up investments in mitigation and adaptation.

Tayler said that governments have an important role in addressing “market failure” – where profits are allowed to rise with emissions – in order to open the doors to private-sector players. On that front, policies need to be credible.

For instance, when countries at the Group of Seven summit in May committed to phasing out inefficient fossil fuel subsidies by 2025, global markets simply shrugged it off because investors did not believe that the outcome was meaningful, Tayler said. “That wasn’t a question that I think any analysts factored into the valuation of carbon-intensive activity.”

Indeed, the Global Stocktake report noted that up until 2019 and 2020, markets still invested US$892 billion in fossil fuels annually, with governments supporting US$450 billion a year in such subsidies. In contrast, global finance flows towards climate action in that period averaged US$803 billion a year.

That is just under a third of the annual investment needed to track decarbonisation pathways towards averting catastrophic climate change.

“What governments can do is send strong signals to the private, finance and real economy actors that they are going to follow through with what they signed up for, and that we’re going to pull every lever we can to hit those targets for reducing emissions,” Tayler said.

Fang Eu-Lin, PwC Singapore’s sustainability and climate change leader, said the world must use the Stocktake’s sobering context to galvanise greater climate action at COP28.

In the Asia-Pacific, financing the managed phase-out of coal-fired power plants is one of the most pressing issues within the global energy transition, she added. These power plants collectively emit 7.2 gigatonnes of carbon dioxide annually, which is around a fifth of total greenhouse-gas emissions, Fang said.

Financial institutions cannot do it alone, however. Policymaker support for coal phase-out dates is crucial for the market, and commensurate investments in grid infrastructure, battery storage and renewables are needed in tandem, she pointed out.

But that challenge also “shines a light on the huge importance (of) sustainable finance”, which Singapore can take the lead on, Fang said. She added that the country is well-positioned to provide new and innovative financial instruments, such as blended finance, to support this climate imperative.

Reducing emissions

Economist Laurence Tubiana, who is chief executive of the European Climate Foundation, said the next round of NDCs has to be different from the first wave. She explained that the first set was created under very different circumstances.

“Nobody was aware that there was an NDC sometimes,” she said. “They were really a niche thing to document on the shelf. No oversight by the parliament. No oversight by the civil society. That had to change. We’re in a very important moment to change that.”

She called the Global Stocktake, which officially concludes at COP28, “a moment of truth”.

“If everybody is serious, we will (have) stronger outcomes at COP,” she said. “If we are not, it will be a moment (when) society has to turn to governments and clearly state, ‘You are all failing us’.”

COP28 president-designate Sultan Al Jaber said parties must act with ambition and urgency to keep within reach a scenario that limits global warming to 1.5 deg C above pre-industrial levels.

That will require reducing emissions by 43 per cent by 2030. This would have to involve a fundamental reform of the international financial architecture that was built for the last century, he said.

“I am calling on leaders from both the public and private (sectors) to come to COP28 with real and actionable commitments to address climate change,” he added.

“We need to rapidly decarbonise both the supply side and demand side of the energy system at the same time. We need to triple renewable energy by 2030, commercialise other zero-carbon solutions (such as) hydrogen, and scale up the energy system, (freeing it) of all unabated fossil fuels, while we eliminate the emissions of the energies we use today.”

GenZero chief executive Frederick Teo said the report marks a “critical checkpoint for climate action”, and shows that countries and corporates will need to adopt more ambitious emissions-reduction strategies, and set stricter NDCs or corporate targets to mitigate the escalating climate crisis.

Teo believes these could lead to a realignment of global carbon markets, potentially increasing the demand for carbon credits and driving up their prices.

Adding that higher carbon prices and greater regulatory support will help drive the adoption of new solutions, he said carbon markets can complement this by channelling much-needed finance towards these solutions through offsetting green premiums.

Ongoing harmonisation of standards to guide corporates on the use of carbon credits in their net-zero journeys, such as the Voluntary Carbon Markets Integrity Initiative’s Claims Code of Practice, will help in this process, he noted.