Taking On a New Leadership Position: Business in Climate Finance
Marion Verles | Dec 28th 2016

2016 may go down in history as a true turning point in the fight against climate change.

In early November, the Paris Climate Agreement came into force, obligating all governments that have ratified it – including the US, China India, and the EU – to limit global warming to well below 2°C above pre-industrial levels. On a more technical level, but probably no less momentous, in October – for the first time ever – renewables like wind and solar overtook coal in installed power capacity. This followed a record-breaking year during which around the globe, every day, half a million solar panels came into use. The International Energy Agency says renewable power capacity is now the world’s fastest growing electricity source. Thirdly, the annual Low Carbon Economy Index report found that global carbon intensity, which is the emissions of carbon per unit of GDP, fell by almost 3%. This was more than double the average fall of 1.3% between 2000 and 2014, and all the more remarkable as the fall happened against the background of healthy economic growth, which is usually one of the main drivers of carbon emissions. PricewaterhouseCoopers, who authored the report, said the fall marked a significant “step change in decarbonisation”.

It would seem that with these rather important milestones the world has stepped up to the climate change challenge and governments and business are getting on with the job of addressing harmful climate change and its broader impacts. But among these undoubted pieces of good news, 2016 has also seen continued scientific and economic climate and carbon warnings.

Extreme climate records continued to be set, including a record low Arctic winter sea ice, each of the first six months of 2016 setting a record as the warmest respective month globally, and CO2 concentrations in the atmosphere passing the psychological barrier of 400 parts per million. Despite the ratification and coming into force of the Paris Agreement, the commitments made by governments on emission reductions are simply not enough and will see global temperatures rise by 3°C above pre-industrial levels, pushing well into what scientists consider very dangerous climate change. And finally, a revisit to the findings of the annual Low Carbon Economy Index report: while the fall in global carbon intensity was indeed an impressive 2.8% during a time of economic growth, it was still far below the 6.5% required to stay within a safe operating space for the planet.

Despite governments showing real leadership in 2015 in negotiating the Paris Agreement, it is clear that more will need to be done to meet commitments. It is also clear that the global business community has a huge role to play in the global transition to a low-carbon economy. Indeed, a CDP report earlier this year found that the currently estimated amount by which the private sectors will cut its greenhouse gas emissions by 2030 is 3.7 billion metric tons. The potential Business Determined Contribution to climate action could nonetheless be as high as 10 billion metric tons.  

 

The Paris Agreement is adopted by world leaders. Image credit: COP Paris/ Flickr.

 

While many valuable initiatives to catalyse climate action are already underway, the real question is more than just how business can complement government carbon mitigation commitments: it is about how the corporate sector can help to proactively address climate impacts and adaptation in such a rapidly changing world.

After all, climate change is multifaceted. Changes in one part of the climate system can have multiple impacts on others. For instance, we face a global water crisis, which will become worse with climate change, threatening food security. Air pollution kills 7 million people every year and as carbon emissions rise we will see increased human health issues. In the natural world, ecosystems are disappearing along with increasing species extinctions. All these are due in part to climate change and these compounding impacts may have more devastating effects as the planet continues to warm.

For business, action on climate change is more than just doing the right thing: global systems, supply chains, and a growing global customer base will depend on addressing these interconnected issues – and that means engaging in real sustainable development.

So how are companies fulfilling their responsibilities and what is a ‘Corporate Climate Leader’? The words leadership and ambition come to mind. More than 200 companies have now signed up to one ambitious scheme – the Science Based Targets initiative that provides guidance and tools for companies to align their GHG emission reduction targets with climate science to meet the 2C goal.

The Kellogg Company, for example, has committed to a 65% reduction in emissions from its operations by 2050, and engaging suppliers to help them reduce emissions by 50% by 2050 whilst the IKEA Group has committed to going 100% renewable, generating as much renewable energy as the total energy it consumes in its buildings by 2020. It has invested €1.5 billion in renewables since 2009 and pledged a further €600 million last year.

And this investment is critical: the United Nations says 100 billion dollars will be needed each year from 2020 to address global mitigation and adaptation needs. Indeed, economist Nicholas Stern, the who led the Stern Review, a landmark climate change report ten years ago, just last month warned that ‘the cost of global warming is worse than I feared’.

Now, companies engaged with the Science Based Targets initiative can go further to show real leadership and ambition – reducing emissions within their supply chains and financing mitigation and sustainable development beyond. Gold Standard is working with the Science Based Targets partners to define a ‘Finance Target’ beyond the current emission reductions target, wherein companies finance additional reductions and support adaptation beyond their operations to accelerate global de-carbonisation and climate resilience.

Adopting and meeting a Finance Target will help a company to demonstrate climate leadership by contributing to all three pillars of the Paris Agreement—driving global decarbonisation, meeting climate finance needs, and supporting development and climate adaptation both within and beyond value and supply chains with quantified contributions to the UN adopted Sustainable Development Goals.

So what does a finance target look like? In principle, a company would:

  • Finance Emissions Reductions by purchasing carbon credits that meet eligibility criteria for environmental integrity and social value
  • Include additional community-based CO2 reduction or adaptation interventions within their value chain through the roll out of, for example, cookstoves, solar power or water filters
  • Contribute to a proposed new fund that would allow collective action, supporting both global mitigation and adaptation activities

The focus on both mitigation and adaptation finance is critical as it allows companies to invest in sustainable development interventions in climate, water, and health, demonstrating to stakeholders the creation of shared value. Even more importantly, through the Gold Standard, these contributions to meeting the world’s ambitious Global Goals are quantified and verified – essential in creating confidence that actions are real, lasting and impactful.

The challenge is great. Current commitments will not meet a ‘well below 2°C’ target. Climate and environmental records continue to tumble. But there is a great deal of room for even more ambition.

 


If you want to learn more about Gold Standard’s Corporate Climate Finance Target initiative in collaboration with the Science Based Targets partners, or to become an inspirational early adopter, please get in touch with the Gold Standard team.

 

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