29 December 2016
Decision Metrics and Finance 2017 Priorities Announcement
The global climate challenge
The Paris Agreement has united the globe in its fight against global climate change, setting ambitious targets for us all. While it is clear that many solutions already exist, there still remains a big challenge: how to scale up innovative solutions quickly enough to a level consistent with the targets set. Even current targets and promising dynamics may not be sufficient to stay on track – this is exemplified by the fact that in 2018, countries will examine whether and how to tighten targets. In order to mobilise the required finance, it is estimated that $93 trillion will have to be spent on building low-emission and climate-resilient infrastructure globally in the next 15 years.
Increasing awareness in financial markets and policy
International climate policy is not the only forum that has woken up to the need for action, monitoring and risk management. It is increasingly recognized that the private sector is exposed to significant climate change risks and opportunities. The G20’s Financial Stability Board concluded in 2015 that, without effective disclosure of these risks, the financial impacts of climate change may not be correctly priced – and as the costs eventually become clearer, the potential for rapid adjustments could have destabilising effects on markets. This has prompted the creation of a Taskforce on Climate-Related Financial Disclosure (TCDF), convening 30 high-level private sector experts, who have issued their recommendations. The aim is that climate-related financial issues are routinely considered in business and investment decisions and encourage an effective dialogue between companies and banks, insurers and investors. That will lead to smarter, more efficient allocation of capital, and speed the transition to a climate-friendly, low-carbon economy.
Similarly, the European Commission has put in place a High-Level Expert Group on sustainable finance, comprising 20 policy leaders from civil society, the finance sector and academia. The objective is that the Expert Group provides, by the end of 2017, recommendations for a comprehensive EU strategy on sustainable finance as part of the Capital Markets Union.
What needs to be done to increase the momentum
While the above developments are very promising because they set the right ambition level and provide broad frameworks, a lot still needs to be done to put this into practice. This includes systemic changes to redirect financial flows; a much improved approach to understanding, managing, and pre-empting the physical risks of climate change; and a focus on actually creating the projects, assets and investment vehicles that allow investors to move from divestment to green reinvestment. While policy and standards play a crucial role, there is a great need for the development of innovative products and services that actually enable the private sector to take action on the required scale.
How Decision Metrics and Finance addresses the climate challenge
Together with partners, Climate-KIC’s DMF theme aims at developing innovative climate metrics, climate finance, and decision-making mechanisms to enable the scaling of climate-friendly innovation. For 2017 DMF prioritises the following five topics:
Transforming financial markets and accounting standards
Developing a global market for climate risk information
Unlocking climate finance for cities
Mobilising finance for sustainable land use
Informing and educating decision-makers on climate finance (cross-cutting priority)
For further information on the five priority areas please refer to the Decision Metrics and Finance 2017 priorities in the Climate-KIC Thematic Priorities document.