This decade is the last in which we can make a meaningful difference to avoid the worst impacts of climate change. In this paper, I explore the reasons why, and assess the green shoots of progress that demonstrate how countries and financial institutions still have a chance to respond to this crisis.
1. Science has been shedding light on the facts of climate change for decades, but the extent of our knowledge is more specific and granular now.
Five years after the Paris Agreement, scientists now estimate that if the world were to heat by 2°C (as compared to 1.5°C), there would be three times as much infrastructure destruction, biodiversity destruction, human pain and death.
2. There is already evidence of what a future could look like if we do not attempt to change course.
Within the last 12 to 18 months, we have seen damage being done to Earth in the form of extreme bushfires. In Australia, for example, fires devastated more than 8 million hectares of Australian territory (an area larger than countries like Scotland, Austria and Panama).
3. The direction of decarbonisation is irreversible, and businesses are preparing for this new future in a bid to remain competitive in the future landscape.
A recent study found 65% of the US economy continues to decarbonise.
4. Asian countries are moving to renewables despite the challenges.
The governments of these nations understand that in order to bring their populations out of poverty, they must continue producing energy; however, they also understand that fossil fuels are not as benign as we thought decades ago.
5. Climate change concerns are likely to drive advances.
Progress will be driven by the standardisation of measurement of environmental, social and governance (ESG) metrics for governments and corporates alike. It is likely to be climate change that is going to be the most-focused-on aspect of ESG factors, for the simple reason that it is the easiest facet of ESG to understand and measure.
6. ESG is here to stay in the financial sector.
This is evidenced by the Principles for Responsible Investment (PRI), which has 2,000 institutions as signatories and, more recently, the Principles of Responsible Banking, which includes 130 banks from 49 countries, equating to around USD$47 trillion in assets.
7. Financial institutions are waking up to new opportunities presented by ESG.
One such example is the UN-convened Net-Zero Asset Owner Alliance, a group of 20 asset owners, who collectively hold around USD$5 trillion in assets.