An Investment Roadmap to ‘Net Zero’

The United Nations’ Climate Change Secretariat has put forward a Climate Action Pathway focusing on aligning financial markets with global ‘net zero’ goals.

According to the Climate Action Pathway 2021, every financial decision must make considerations for climate change to ensure that global warming is capped at 1.5°C above pre-industrial levels.

It also highlighted five specific areas in which financial markets can assist in hitting the global climate goals set out in the Paris Agreement.

Among them are: the creation of “new market norms” that promote climate-enabled investment; better risk-management and data availability; ensuring capital flows are directed away from high carbon areas; lengthening investment horizons to remove short-termism in the market; and correcting market failures when it comes to pricing anomalies.

“If these shifts are made, money will flow in a manner consistent with our 1.5°C-aligned and resilient vision for 2050 and beyond,” the report stated. “One of the key proof points will be the availability of finance at scale for zero-carbon, resilient infrastructure and nature-based solutions.”

Great strides to reaching the net zero target by 2050 have already been made, the report said. Over the past 18 months, several initiatives have been launched to assist financial institutions in setting and achieving their 2050 net zero goals.

“Finance-sector initiatives have expanded along the Race to Zero Campaign, with the UN-convened Net Zero Asset Owner Alliance, the Paris-Aligned Investment Initiative’s Net Zero Asset Owner Commitment, the Net Zero Asset Managers Initiative and the Net-Zero Banking Alliance all having come together in April 2021 to launch the Glasgow Financial Alliance for Net Zero,” the report said.

It added that it expects further financial sector Race to Zero alliances to launch in the run-up to the COP26 conference in the UK in November.

There are currently 42 institutional investors with $6.6 trillion in assets under management included in the UN-convened Net Zero Asset Owner Alliance, while the Net Zero Asset Managers Initiative has 87 signatories with $37 trillion in combined assets. The Net Zero Banking Alliance consists of 45 banks with $29 trillion in total assets.