Michele Leung, Green Finance Advisor of Friends of the Earth (HK)

The Paris Agreement aspires to keep global temperature rise to only 1.5°C by 2100. According to the Intergovernmental Panel on Climate Change (IPCC), limiting global warming to 1.5°C or 2°C would require “rapid and far-reaching” transitions in land, energy and industry etc. It is quantified that global net human-caused emissions of carbon would need to fall by about 45 percent from 2010 levels by 2030, reaching ‘net zero’ around 2050. Hence in other words, to achieve the goal of the Paris Agreement , global emissions in the real world must be Net Zero no later than 2050.

Many countries have made commitments on Net Zero. For example, we have Net Zero Asset Owner Alliance that the asset owners gather and set targets for emissions reduction of their equity and corporate bond portfolios. Other large pension funds are likely to follow suit to make plans on their decarbonization and to put allocations to support low carbon transitions. They also drive a lot of momentum by systematically engage with the top emitters in their portfolio and/or request a detailed analysis and reporting on companies’ targets and associated trajectories from their managers.

Meanwhile, the Network for Greening the Financial System (NGFS), is a network of 83 central banks and financial supervisors that aims to accelerate the scaling up of green finance and develop recommendations for central banks’ role for climate change. It is anticipated they will soon define and require climate stress tests to be run by the banks under their oversight.

With the 2021 United Nations Climate Change Conference, also known as COP26,  scheduled in this November, there are expectations that more regulations will come in place. For example, it will lead to several countries announcing mandatory TCFD reporting.

After all, tackling climate change should not be only about reporting or ticking the box exercise but should also develop climate strategies. Forward looking metrics are essential as backward metrics do not capture future risk. Some investors may think that the available metrics might not be accurate and investment ready. It is undeniably that climate change is inherently uncertain and the application to finance is still maturing, yet being pragmatic with exclusions is the key. In absence of data disclosure, scientific modeling and granular assessment would be helpful in filling the data gap. Many asset owners and asset managers around the world are already doing so, have you get started?


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