The Scale of the Net Zero Challenge

What is the scale of the challenge?

Global temperature needs to stabilise at 1.5 degrees above the pre-industrial average, we are currently at 1.3 degrees. With current climate change policies, we are expected to hit 2.9 degrees warming. To stabilise temperature rises at 1.5 degrees, emissions need to half over the next decade, falling 7% year on year. 

An overhaul of the energy system is required, energy emissions from electricity along must fall 60% by 2030. Annual investment in clean energy will need to rise to $4tn, about 3.5 times what it currently is. 

What are the sources of finance?

Country commitments (NDCs) are on the rise but are not yet good enough. The IEA has concluded that the current stated policies would only limit temperature increases to 2.7 degrees, rather than the 1.5 degrees required. 

If the NDCs are seen as credible, investors will pour money in anticipation creating a virtuous cycle of large-scale investment, faster decarbonisation and greater jobs and growth. 

To make these NDCs credible, public finance support for critical infrastructure is required, however, only private finance can match the scale of climate action needed for the transition to net zero. 

How will we get the money where it needs to go?

To reach net zero climate-related financial reporting is critical. The push to require all financial institutions to publish climate-related financial reporting is underway, almost the entire financial sector demands TCFD disclosures for example. 

The IFRS is also setting up the International Sustainability Standards Board, which will produce a climate disclosure standard by mid-2022, ensuring financial transparency when it comes to sustainability. 

The NGFS has grown to include 90 authorities in countries responsible for more than 80% of the world’s emissions and central banks in countries with 50% of global emissions are beginning to conduct climate stress tests. 

All of these initiatives aim to help investors identify and measure the returns and opportunities in the transition to net zero.