Climate change is progressing faster than anticipated. But it can still be contained. This presupposes a huge reduction in green house gas emissions. Governments see the financial industry playing a key role in this process.
Today, climate change is perceptible in every region and climate zone on Earth. Extreme events related to climate change are occurring with increasing frequency around the globe. Previous forecasts and models are mostly proving true. Yet, as the United Nations Intergovernmental Panel on Climate Change points out, many of these developments are appearing for the first time in thousands of years. The years from 2015 to 2020, for example, were the warmest since the World Meteorological Organisation started taking measurements. If this trend continues, temperature on Earth will rise by at least three degrees Celsius by 2100 warns the Intergovernmental Panel on Climate Change (IPCC) (https://www.ipcc.ch/report/ar6/wg1/) in the climate report recently presented in Geneva.
Global warming can still be contained
The research underlying the report shows that it will take hundreds or even thousands of years to reverse these trends. This means that it is no longer possible to reverse climate change and its consequences for mankind, flora or fauna. Even if greenhouse gas emissions were to be massively reduced in the future, the ongoing climate changes will persist for years to come. It is possible, however, to contain the scope of global warming. To do so, the high CO2 and other greenhouse gas emissions must be immediately and systematically reduced. This would stabilise or even slightly reduce global temperatures over the coming 20 to 30 years. Otherwise, it will not be possible to achieve the target set by the Paris climate agreement of limiting global warming to 1.5 degrees Celsius over pre-industrial temperatures.
A challenge for the bodies politic and the financial industry
The financial industry must develop strategies capable of contributing to the reduction in CO2 and encouraging energy transition. Indeed, for many providers of financial services, aligning funding and investment decisions with sustainability objectives and global environmental treaties has become a factor driving innovation, business growth and competitiveness. For the financial industry, this has heralded a new era – one where sustainable finance is the new conventional wisdom.
However, many market players have realised that capital markets are not allocating capital in a manner conducive to achieving climate targets. We need rules. The most ambitous regulatory plan is currently the European Union’s Action Plan on Sustainable Growth and the European Green Deal for various sectors. In this context, the EU is deliberately seeking to steer the process by eliminating market inefficiencies. As part of this plan, the financial industry is to assume a key role in financing the transition to a sustainable economic system. Looking ahead to 2030, Switzerland must attain the sustainable development goals set forth in its Agenda 2030 and, looking ahead to 2050, the net zero greenhouse gas emission objective for 2050 adopted by the Paris Climate Agreement. The Federal Council believes that financial flows should therefore become environmentally friendly flows.
