Transformation of financial system crucial to achieve Paris Agreement goals

The closing window

The report provides an update of global emissions pathways and assesses the progress towards achieving national mitigation pledges, the Paris Agreement goals and the resulting ’emissions gap’. A total of 41 institutions, 77 experts and 100 external reviewers have contributed to the Emissions Gap Report 2022.

As climate impacts intensify, the Emissions Gap Report 2022: The Closing Window – Climate crisis calls for rapid transformation of societies finds that the world is still falling short of the Paris Agreement’s climate goals, with no credible pathway to 1.5°C in place. Only an urgent system-wide transformation can avoid an accelerating climate disaster.

“I am not going to waste your time talking about the impacts of climate change,” said Inger Andersen, Executive Director of the UN Environment Programme. “We all know them. We all feel them. We all know they are going to get worse. And still, as UNEP’s Emissions Gap Report 2022 shows, we aren’t doing anywhere near enough to cut greenhouse gas emissions.”

Mitigation needed by 2030

The world needs to drastically avoid irreversible climate change effects by mitigating emissions by 2030. The report looks at how to deliver a transformation through action in the electricity supply, industry, transport and buildings sectors and the food and financial systems.

The UNFCCC Secretariat recently launched a report on countries’ NDCs. It shows countries are bending the curve of global greenhouse gas emissions downward, but underlines that these efforts remain insufficient to limit global temperature rise to 1.5°C by the end of the century.

According to the report, the combined climate pledges of 193 parties under the Paris Agreement could put the world on track for around 2.5°C of warming by the end of the century.

“A total of 193 country pledges have been reviewed and the curve is slowly flattening, but commitments need to be strengthened and we need to speed up the momentum,” Sarmad said at the press conference.

The Emissions Gap Report 2022 looks at transformations and action required to reach the Paris Agreement goals, with a specific focus on the role of food systems, finance flows and investments in accelerating transformation.

Finance sector transformation crucial for progress

Marbuah was a contributing author to the finance chapter 7 on “Transforming the finance system to enable the achievement of the Paris Agreement.” Marbuah and the other chapter co-authors summarized what is required from the financial sector.

The financial system must overcome internal and external constraints to become a critical enabler of transformation across all sectors.

• A global transformation to a low-carbon economy is expected to require investments of at least $4-6 trillion a year. This is a relatively small (1.5-2%) share of total financial assets managed, but significant (20-28%) in terms of additional annual resources needed.
• Delivering such funding will require a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors.
• The six approaches to financial sector reform, which must be carried out in an integrated manner, are:

• Make financial markets more efficient, including through taxonomies and transparency.
• Introduce carbon pricing, such as taxes or cap-and-trade systems.
• Nudge financial behaviour, through public policy interventions, taxes, spending and regulations.
• Create markets for low-carbon technology, through shifting financial flows, stimulating innovation and helping to set standards.
• Mobilize central banks: central banks are increasingly addressing the climate crisis, but more concrete action on regulations is urgently needed.
• Set up climate “clubs” of cooperating countries, cross-border finance initiatives and just transformation partnerships, which can alter policy norms and change the course of finance through credible financial commitment devices, such as sovereign guarantees.

With COP 27 just around the corner, UN Climate Change calls on governments to revisit their climate plans and make them stronger to close the gap between where emissions are heading and where science indicates they should be this decade.