Mostafa Monira Firdouse, Green Finance Advisor, FoE (HK)

Climate tech, the renewed love of my life! The last hope that I believe can bring positive turn to climate change. Wish, I would be able to witness this. If not that’s also fine, as long as I know that governances are in-place with clear line-of-sights and long-term plans to provide financial viability to assure sustainability. BUT HOW?

Those of you who missed my previous article on Capital Mobilization, here is a recap.

Clean technologies have the potential to reduce up to 90% of human-made emissions by 2050. However, only 10% of their potential is being fully used.

According to McKinsey climate tech report, twelve categories of climate technologies hold the promise of large-scale emissions reduction. Though their maturity varies: for example, renewable energies such as solar and wind energy are increasingly being deployed and, in some regions, are already cost competitive with fossil fuels, whereas carbon removal technologies and alternative proteins are in an early development stage.

So, the question is, why are these technologies not taking off, and why is scalability an issue? Is that because of the financing gap, lack of incentive, or lack of trust/assurance?

It is imminent that we need policy-driven long-term green financing and fast-moving transition finance with private and public participation. However, to move the needle, the missing puzzle piece is the right incentive mechanism, and that should be the development of an honest carbon market. Rather than providing direct financial incentives, we should look into establishing a carbon market with proper benchmarking and sustainability assurance.

More than ever, financial institutions and project sponsors are under pressure for lack of transparency and risk management concerning social and environmental responsibility. Due to the lack of trust in data source, the carbon market could never take off and, or, viable. Which severely costing emerging markets and the main cause of environmental and social degradation. Like financial accounting audits, it is essential to mandate environmental and social audits:

  • To ensure credibility and environmental integrity of carbon credits through third-party verification that carbon offset projects are genuinely reducing or removing emissions as claimed.
  • To increase transparency and traceability preventing double counting or fraudulent claims.
  • To build trust and confidence among buyers and sellers.
  • To attract investment towards credible climate projects and eventually contribute to the society.
  • To align with emerging regulations and standards.

Principles of Sustainability Assurance:

Materiality: Assurance focuses on material aspects that significantly impact the organization’s sustainability performance and are relevant to stakeholders.

Completeness: Assurance ensures all relevant information is included and nothing material is omitted.

Credibility: Assurance provides credibility to the reported information, enhancing the trust of stakeholders.

Compliance: Assurance processes may be designed to ensure compliance with relevant laws, regulations, and industry standards related to sustainability reporting.

Voluntary Reporting Initiatives: Organizations may voluntarily undergo assurance, even if not required by law, to demonstrate their commitment to transparency and accountability.

Feedback Loop: Sustainability assurance should be part of a continuous improvement process, with feedback mechanisms to enhance data quality and reporting over time.

Stakeholder Engagement: Engaging with stakeholders in the assurance process can provide valuable insights and enhance the credibility of sustainability reporting.

Sustainability assurance is crucial in fostering transparency, accountability, and trust in an organization’s sustainability practices, contributing to long-term value creation and responsible business practices.