Energy transition: As action fails to meet commitment

Despite a wave of support for carbon neutrality goals, banks, insurers, asset managers and owners are still struggling to make concrete commitments to transition away from fossil fuels; HELEN OJI report.

Data have shown that financing for fossil fuels has declined for the second year in a row. And this marked one of the key takeaways at the Global Synthesis Report on Climate Finance 2022.

Climate Chance published the 4th edition of the Global Synthesis Report on Climate Finance on October 25, during the Paris for Tomorrow Week (from October 24 to 28) organised by Finance for Tomorrow in conjunction with Climate Finance Day (October 27).

Achieving SDGs

The international event brought together the financial community, local and public authorities, and civil society to highlight issues and solutions relating to financing and achieving net zero climate and the Sustainable Development Goals (SDGs).

The Global Synthesis Report on Climate Finance also showed that $632 billion in climate finance flows were mobilised in 2019-20, 10 per cent more than the previous two years. It adds that despite a 53 per cent increase from 2017-2018, financial flows for adaptation in 2019-2020 remain far from the desired targets specified under the Paris Agreement. Mitigation therefore still accounts for 90 per cent of the funding.

Financial transparency

With the European Union adoption of Sustainable Finance Disclosure Regulations (SFDR), which focuses on the impact of financial products on the environment and green taxonomy. Europe continues to be a world leader in climate finance transparency.

The increase in the number of taxonomies, both recent (ASEAN) and older (China), and the rules on climate transparency for financial actors (United States) strengthen the regulation of green investments, but also call for harmonisation between players.

In France, the Netherlands, the United Kingdom, and the European Central Bank, the first climate stress tests conducted by regulators reveal the particular vulnerability of Europe’s financial actors to transition risks.

However, due to their experimental nature, none of these initial stress tests should lead to climate-related capital requirements. The rapidly growing ESG market is seeking to standardize transparency standards. A record number of funds were invested in ESG products in 2021, but the market remains plagued by shortcomings in ESG data transparency, reliability, and standardisation.

According to figures from the Organisation for Economic Co-operation and Development (OECD) published at the end of July, climate finance amounted to $83.3 billion in 2020, falling short of the promise made by Global North countries to commit $100 billion per year, from 2020 onwards to those in the Global South. In the lead-up to COP27, organised this year on the African continent in Sharm El-Sheikh, the climate negotiations will focus on issues of financing and commitments, the drivers of climate action.

Global overview

The need for consistent action by the financial sector in relation to climate and environmental issues, the Global Synthesis Report on Climate Finance 2022 provides a global overview and an essential analysis of all financial flows that enable the implementation of actions that have a positive impact on mitigation (reducing GHG emissions) or adaptation to climate change.

Created in partnership with Finance for Tomorrow, a branch of Paris EUROPLACE, the new report provides a detailed overview and follow-up of climate action carried out by banks, insurers, and investors. It also presents the trends in the market regarding the evolution and offer of green financial products.

President of Climate Chance, Ronan Dantec, said one year before the Global Stocktake, which will mark the first assessment of States’ progress in implementing the Paris Agreement, this fourth edition of Global Synthesis Report on Climate Finance by Climate Chance and Finance for Tomorrow is a major contribution to observing “how far we have come in mobilising financial actors and instruments for the climate.

“The challenge for finance now lies in its capacity to support the ecological transition in order to make it an economic reality.”

President of Finance For Tomorrow, Thierry Déau, said, “I am delighted with this unique partnership between Finance for Tomorrow and Climate Chance, which allows us to establish a comprehensive and detailed analysis of the main trends in climate finance in order to inform all stakeholders.”

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