COP25: Measurement and attribution of climate contribution to financiers

With the carbon costs of travel in mind, key EIT Climate-KIC COP25 session summaries are available online for those who cannot attend—and for review for those present. These summaries aim to extract important debates, dialogues, and learnings from each session.

Last week, EIT Climate-KIC’s CEO Kirsten Dunlop moderated a session during the “Measurement and Attribution of Climate Contribution to Financiers” event, which asserted: To shift from incremental improvements to transformational climate action, financiers should be incentivised to conduct green investments. This requires the measurement and attribution of their scope three climate contribution, a complex task that raises several new and challenging issues.

The event was introduced by Massamba Thioye, Manager of Regulatory Development Unit, UNFCCC.

The session, “Measurement of Financiers’ Contribution to the Climate Goals,” featured a panel consisting of: Nancy Saich, Climate Change Expert/Senior Adviser, EIB, Mike Knight, Senior Adviser, Carbon Tracker, Simon Messenger, Director, 2 Degrees Investing Initiative, Simon Connell, Head of Sustainability Strategy, Standard Chartered Bank and Dennis Pamlin, Senior Advisor, RISE Research Institute of Sweden.

When we talk about financial systems what do we mean?

Saich said, for a long time, public banks have played a dominant role in financial systems, but we’re now seeing gradual involvement of a wider range of players. With the EU’s involvement, we’re noticing a bigger focus on capital markets and investor choices. Commercial banks are forming groups to address the climate change issue, and we’re starting to see that central banks and regulators are now driven by financial risk and the reasoning that any financial system, if it’s going to be viable, needs to be sustainable. Therefore, there are tools that need to be put in place to support this new mindset.

Pamlin said so far we have been focusing on financial players engaged in transformative change. But, for a long time, people have been coming to the COP to discuss challenges instead of solutions, and innovation ecosystems have not been included in the conference. Now that they’re part of the conversation, many stakeholders could be engaged.

“Finance is a relatively low carbon activity with big carbon consequences,” said Knight. He continued, saying we need to think of investing at an international scale and not just a regional one to address climate change.

Can we map out the disconnects of financial systems and the challenges of transformation?

“Finance is a service sector and a wrapper around the real economy. People within finance can be passive or play an interventionist role and, given the fact the world is on track for three degrees, that looks necessary,” said Connell. “We need finance to look further forward in time to talk about the risks we’re not pricing in. Being aligned with the Paris Agreement and de-risking a portfolio are two different things.”

Pamlin said sectors are now rethinking their purpose; they’re asking how they can measure their real impact in society. Questions like: “How many people do we feed?” and “How many children are we educating?”

“We will see clusters of new stakeholders soon,” he concluded.

Saich said financial systems are addressing the disconnect from transformative action, but very peripherally. The EU is leading the way here and is careful to avoid greenwashing by transparently working to define what “green” means. It’s also encompassed environmental objectives in addition to climate.

She cautioned: If we’re undermining the end game with something else we’re doing, then that effort is wasted. Paying attention to this necessarily involves questioning where the money is going, which challenges the status quo of financial systems.

Knowing that financial systems aren’t currently aligned with the Paris Agreement goals, how can we intervene?

Messenger said we must start measuring climate impact. However, if you asked everyone to fully align their portfolio with the Paris Agreement targets, it would not be feasible. That’s why policy plays an important role here. He concluded: Financiers, policymakers and the public need to work in sync to make these big transformations happen.

Saich said all finance has to be compatible with the Paris Agreement goals, whether it’s climate finance or not.

“There are economic sectors we don’t need and need to be shut down, which is where the conversation around social impacts comes in,” she said. “And then there are sectors we need – food and construction materials – and we need to be focusing there. We need to ask: “Is it green?” We need transformation in those sectors.”

She continued: “We’re putting so much pressure on the green part of the market. If we required more impact reporting from other sectors, that would be more fair.”

Pamlin said current financial systems don’t foster long-term and agile solutions: “Real transformation is a threat and we need new financial systems to move forward.”

Our growth-focused economic system is wired to discount the future in favour of the present. Where do we see signals of discontinuity and alternative systems coming through?

“The EU technical leadership group leaps to mind, with experts from every possible background working to drive the climate agenda,” said Saich. “The fact you have NGOs, public banks, banks, certifiers working together is fantastic.”

She asked: “How can we drive finance towards not doing things?” For example, the most low-carbon solution is to avoid driving a vehicle at all, and to design a city for walking. But the financial sector is not designed to support that.

“Also, can we please stop thinking we can do valuable climate action with offsetting? It’s a good idea, but it’s not the solution,” she concluded.

Knight said: “I get a sense of enchantment that finance will solve the problem. But the finance community will need political backup for that to happen, and the endorsement of what we talked about today, to move towards the financial systems we want.

Dunlop concluded the session by asserting we need the right boundary conditions, operating standards, practicing assumptions and more to shift financial systems. The last element is shifting from trying to pick winners to investing in many actors working together towards a common goal.

 
Location
Spain
Related Goal
Goal 10: Mainstream climate in financial markets
Articles you may be interested in
In our community
Water scarcity in Southern Europe: Raw materials expert insights
Water scarcity in Southern Europe: Raw materials expert insights
In Detail
Challenge-led system mapping: A knowledge management approach

The challenge-led system mapping approach responds to the need to improve the practitioner’s capacity to move towards system change by providing mechanisms by which...

Challenge-led system mapping: A knowledge management approach
In The News
EIT Climate-KIC is restructuring to deliver systems transformation for climate...

EIT Climate-KIC is restructuring to provide “systems transformation as...

EIT Climate-KIC is restructuring to deliver systems transformation for climate change
In Detail
A Deep Demonstration of Healthy, Clean Cities: Our Position Narrative for In...

Innovation-as-usual, which is typically siloed and focused on ‘supplying’ the market with technology-led solutions, is not going to deliver a just, inclusive world within 1.5-degree of warming from pre-industrial levels. Innovation...

A Deep Demonstration of Healthy, Clean Cities: Our Position Narrative for Integral District Renewal
In our community
Water scarcity in Southern Europe: Food expert insights
Water scarcity in Southern Europe: Food expert insights
In The News
EIT Climate-KIC and partners reassess our values in the ‘new normal’

EIT Climate-KIC, together with Edgeryders, ETH Zurich and IOTA,...

EIT Climate-KIC and partners reassess our values in the ‘new normal’
In our community
Water scarcity in Southern Europe: Climate expert insights
Water scarcity in Southern Europe: Climate expert insights
Opinion
Who’s doing what: A news round-up of selected COVID-19 responses and recovery plans
Felicity Spors Head of International Affairs, EIT Climate-KIC
Who’s doing what: A news round-up of selected COVID-19 responses and recovery plans
In The News
Co-Action carbon capture project opens new field plots

Yesterday, EIT Climate-KIC community member ‘Co-Action,’ a carbon capture...

Co-Action carbon capture project opens new field plots
In Detail
Implications of the COVID-19 pandemic for global sustainable finance: An int...

The UN Environment convened Financial Centres for Sustainability (FC4S) recently published a working paper, supported by EIT Climate-KIC, on the implications of the COVID-19...

Implications of the COVID-19 pandemic for global sustainable finance: An internal framework for response strategies
In Detail
A cartoonathon: Using humour to drive insights

Last week, in an event supported by EIT Climate-KIC, over 150 participants from more than 60 countries took part in a virtual ‘cartoonathon’ to...

A cartoonathon: Using humour to drive insights
In The News
EIT Climate-KIC launches Call for Proposals to support post-COVID-19 green rec...

EIT Climate-KIC’s ‘Extraordinary Post COVID-19 Regeneration Call 2020’ will...

EIT Climate-KIC launches Call for Proposals to support post-COVID-19 green recovery
Opinion
COVID-19 responses and recovery plans—the good news and the bad news
Felicity Spors Head of International Affairs, EIT Climate-KIC
COVID-19 responses and recovery plans—the good news and the bad news
Innovation Spotlight
How to engage citizens in a just transformation process

With climate change, we are facing one of the biggest challenges of our lifetime – one that...

How to engage citizens in a just transformation process
In The News
The European Union has the tools to boost a sustainable recovery from the COVI...

In a statement released today, the Technical Expert Group...

The European Union has the tools to boost a sustainable recovery from the COVID-19 pandemic, say TEG experts
In our community
Interview with Thomas O’Neill, Influence Map
Interview with Thomas O’Neill, Influence Map
In our community
The EU’s Coronavirus Response Initiative: An interview with Felicity Spors...
The EU’s Coronavirus Response Initiative: An interview with Felicity Spors, Head of International Affairs Strategy at EIT Climate-KIC
Opinion
Will COVID-19 derail climate finance?
Dominic Hofstetter Director, Capital & Investments, EIT-Climate-KIC
Will COVID-19 derail climate finance?
Opinion
Transformative policies for the climate challenge
Rachael McGuinness Policy Innovation, EIT Climate-KIC
Transformative policies for the climate challenge
In Detail
Exploring frontiers in sustainability: Bringing futures literacy to financia...

As part of EIT Climate-KIC’s Long-termism Deep Demonstration, Riyong Kim, Director of Decision Metrics and Finance at EIT Climate-KIC, has co-authored a new report,...

Exploring frontiers in sustainability: Bringing futures literacy to financial services in Ireland and France
Opinion
Long democracies
Dark Matter
Long democracies
Opinion
Long financing in a volatile world
Dark Matter
Long financing in a volatile world
Opinion
Long welfare
Dark Matter
Long welfare
Opinion
Abstracted to entangled organisation
Dark Matter
Abstracted to entangled organisation
Opinion
Persistent things
Dark Matter
Persistent things
Opinion
Persistent selves
Dark Matter
Persistent selves
Opinion
Futures in long-termism
Dark Matter
Futures in long-termism
In our community
Strengthening community ties and supporting each other through the COVID-19 ...
Strengthening community ties and supporting each other through the COVID-19 crisis
Opinion
The Corona canvas: How to deal with the crisis as a founder
Marc Mogalle & Anje Kluth Business Buddies & EIT Climate-KIC
The Corona canvas: How to deal with the crisis as a founder
In The News
Lilium completes funding round worth over €224 million

EIT Climate-KIC supported Lilium, a Munich-based aviation company developing...

Lilium completes funding round worth over €224 million