COP21 Paris – strengthening a collaborative response for #climateaction

In the age of multiple risk factors lurking around us socially and economically, it is the quality of collaboration, the robustness of commitment and real action that will chart how we get from a no-through road, the present, to a low-carbon transition, the immediate future.

 “A quiet revolution is underway”, confirmed the representatives of, among others, UNEP FI, the Green Investment Bank (UK), The Bank of England, at a stakeholders meeting hosted by the Natural Capital Declaration last October. 

Will we believe these words even if a legally binding agreement were not to emerge from Paris? And will that matter in the greater scheme of things? After all, Governments around the world are already promising to reduce emissions under their Intended Nationally Determined Contributions (INDCs).

A significant momentum from industry and the investment community seems to have built up to COP21 in Paris but will this translate in an agreement that soundly responds to scientific evidence? What we now need to ask the political delegations at COP21 is:

• Are world leaders and national regulators ready to respond in a concerted way?
• Are finance actors realising the potential scale of impacts and the consequential blow to global stability?

“He who has ears to hear, let him hear” but we shall not lower our urgent call for:

• Consistent and comparable disclosure of externalities – nature matters and climate change stability is a reflection of how we - as individuals, companies and Nations- need to become responsible stewards of nature and her eco-systems; most importantly, we need to strike a true balance between reporting frameworks, the information produced by publicly listed companies and the effectiveness of actions at both local and global level. We need regulators to take stock and drive the management of global resources as international trade and the transboundary nature of pollution from fossil fuel emissions compels us to do so. 
• Inclusion of Environmental, Social and Governance metrics in all stages of investment decision-making – the exclusion of information in an era of hyper-complexity does not seem apt to building understanding of both present and future conditions and how these might impact the resource availability, performance and prospects of both companies and Nations;
• Economic and financial instruments to enable a green market and stimulate innovation – we need incentives, tax breaks, grants, etc. to give wings to the existing technologies available in the market and support the scale of structural changes required across infrastructure, transport, retail, education, etc.

In a recent of paper on Climate Change and Firm Valuation, Dr. Philipp Krüger’s analysis indicated that “.. increased transparency with respect to carbon emissions could lead to higher liquidity suggesting that disclosure induced increases in valuation would come mainly through capital market benefits...” and suggested that effective regulation positively impacts capital markets by enhancing trade flows and lowering information asymmetries.

We know capital markets can unlock investment capital while creating stability. So what are we waiting for? 

Adjustment is never easy and, as it is unlikely to be equally distributed among economic actors. Paris offers an opportunity right now to strengthen a collaborative response to this global transition and accelerate, in particular, the rate of transformation of energy markets, which is already afoot.

Most importantly, Paris is the opportunity to link the power of leadership with the power of finance. The former can drive national jurisdictions to lead and unleash authoritative laws, within differing levels of enforcement; the latter can transfer much needed capital where most appropriate which in turn, reduces the extent of current and future Value at Risk (VaR), currently too daunting to mention.  However, let’s not forget to take corporate culture along with this as companies determine their performance and operations, and it is therefore crucial they embrace a new notion of value, sustained over time and inclusive of impacts and dependencies on both nature and communities.

On November 30th, at a panel discussion at The Dickson Poon School of Law (King’s College), Dr Megan Bowman, the author of “Banking on Climate Change”, clarified that non-binding regulation has a role to play in international negotiations in terms of gaining initial buy-in from disparate parties and setting the scene for further negotiations.

We know that Paris is under the international spotlight and several observers are waiting with trepidation and a degree of hope, even though there is scepticism about whether a legally-binding agreement will be reached.

We know States can be leaders and can drive both innovation and economic growth (see The Entrepreneurial State). What we now need is collectively to accept the need for a collaborative response to a multitude of risks. Should an agreement fail to be as strong as required, it is our hope that the agreed national emission reduction targets will be met by sufficient regulatory oversight. 

Whatever the outcome, CDSB will continue with its work day after day.

Désirée Lucchese is Technical Manager at CDSB.