The climate and Covid-19 emergencies demand more urgency

By We Mean Business coalition | October 23, 2020

At 2019’s UN climate conference in Madrid, the fourth since the landmark Paris Agreement in 2015, the UN Environment Programme published data showing the world will need to make annual greenhouse gas emissions (GHG) cuts of 7.7 percent every year to have any chance of keeping global average temperature rises under 1.5ºC. This is a daunting number (even with the expected emissions reductions in 2020 from the impact of Covid-19). But, in the background, as diplomats went about the tough business of crafting the details of a global climate rulebook, another announcement was made. The Science Based Targets initiative (SBTi) revealed that 285 companies (collectively responsible for more than the combined annual emissions of France and Spain) had already set GHG reductions targets in line with the Paris Agreement – and 76 of those targets were already in line with the 1.5ºC target. Collectively, those companies – which included household giants to lesser well-known wholesalers and manufacturers – were committed to investment of up to $18 billion in climate change mitigation, with the aim of deploying enough renewable energy to power over 10 million US households per year. 

A year later, as it reaches its 5th birthday, the SBTi announced that over 1,000 businesses, with a combined market capitalisation of over $15 trillion have now committed to reduce their GHG emissions in line with the Paris Agreement. As the true scale of economic disturbance unleashed by Covid-19 became known in spring, 155 of these companies – including some of the biggest brands in the world (from IKEA, to EDF; Nestle to Carlsberg) – called on governments to align their Covid-recovery programs with the latest climate science. All this is hugely important – as it sends a strong message to investors, SMEs and governments that net zero has moved from a ESG (Environmental, Social, and Corporate Governance) strategy to a core business one. And it represents a scaling-up of ambition. Companies will be expecting their suppliers to take heed, while governments and – increasingly – money managers will be expecting clearer disclosure norms and water-tight corporate strategies. We can see this happening already. 

Financial products and investment outlook

In the financial markets, green bond issuance is rising, both at national level (where large industrial economies like Germany have now issued their first sovereign green bond) and at corporate level where issuance has risen from under $1 billion in 2010 to $263 billion this year, according to ratings agency Moody’s. And political leaders appear to be heeding the calls of business. The EU has announced that a third of its €750 billion of Covid-recovery stimulus will be ringfenced for environmental outcomes.

Brussels is even considering raising its own sustainable bonds as early as next year, as reported by the FT; and if the 30% target holds, that could mean an additional €200 billion of green borrowing. Perhaps this is part of the reason that the consultancy PwC has estimated that over half of portfolios will be invested directly in ‘sustainable investment products’ (like ESG funds) within a decade. This will be helped by new EU rules forcing funds to provide more information on the environmental make-up of their portfolios. There are also demands from CEOs for clearer and more unified reporting standards for ESG criteria. The SBTi has launched a new process to develop the first science-based global standard for corporate net-zero targets, to ensure that companies set a meaningful net-zero target, that avoids the risks of double-counting offsets. 

Investor groups, meanwhile, are becoming much more vocal. In October 2020, a nearly $20-trillion strong group of 137 financial institutions made a major public intervention to ask companies to commit to a science-based target. The targeted companies, according to CDP, are ‘the source of 13.5 gigatons of emissions each year, [which is] equivalent to 25% of total global emissions. [And] Across their entire value chain, the companies have influence over 3x this volume of cumulative emissions’. 

The political story is important too and 2020 might be seen as a pivotal year ahead of the COP26 talks in Glasgow. We have seen a Chinese President stand before the UN General Assembly and announce a policy for China to be carbon-neutral by 2060. Likewise, the European Commission has announced that it wants EU emissions cuts to be at least 55% (on 1990 levels) by 2030 – with the European Parliament voting for a 60% cut

Covid-19 and climate emergencies demand huge political leadership, massive investment and clear corporate strategy. But we are beginning to see real evidence of a mutually sustaining loop of pressure between politicians, CEOs and the world of finance.

Join the Race to Zero >


COP27: Day 10

Across the two weeks, non-State actors offered a wide range of actions, announcements, and events across thematic areas. This included the launch of the African Cities Water Adaptation Fund, an African-led insurance commitment to provide cover for up to USD 14 billion in climate losses, and the Sharm-El-Sheik Adaptation Agenda in partnership with the COP27 Presidency.