Scaling Up Private Sector Action on Climate Change
Overview
The private sector plays a crucial role in achieving the climate targets outlined in the Paris Agreement. To meet these targets, an estimated $8 trillion in annual climate finance must be mobilized by 2030, a six-fold increase from the levels deployed in 2022. Private capital is expected to deliver at least $2.61 trillion annually. Currently, many companies have committed to net-zero targets, but only about 18% are on track to meet these goals by 2050.
Key Data Points
- Total Annual Climate Finance Needed: $8 trillion by 2030.
- Current Corporate Climate Finance: Increased by only 5% from $183 billion to $192 billion since 2018.
- Companies Committing to Net-Zero Targets: Over half of the world's top 2,000 publicly listed companies, with combined annual revenue exceeding $27 trillion.
- On-Track Companies: Only 18% of companies committed to net-zero targets are on track to meet their goals by 2050.
Corporate Greenhouse Gas (GHG) Accounting
Corporate GHG accounting is guided by frameworks such as the Science-based Targets Initiative (SBTI) and the GHG Protocol. These frameworks are widely used and serve as benchmarks for emerging disclosure regulations. However, there is a gap between the voluntary corporate inventory accounting systems and the national architecture under the Paris Agreement. This gap needs to be addressed to ensure alignment and robustness.
Lessons from the Paris Agreement
The Paris Agreement provides a structured approach to target-setting, tracking, and achieving climate goals. Key lessons include:
- Enhanced Transparency Framework: Countries are required to provide detailed emissions inventories and track progress towards NDCs.
- Market-Based Mechanisms: Countries can engage in cooperative approaches like international emissions trading to achieve their NDCs.
- Separation of Physical Inventories and Performance Accounting: This ensures that market-based mechanisms do not lead to double counting.
Current Corporate GHG Accounting Practices
- Scope 1 Emissions: Rely heavily on allocational methods of physical GHG accounting.
- Scope 2 Emissions: Allow for both physical location-based and market-based accounting.
- Scope 3 Emissions: Primarily rely on estimations based on a combination of spend data and generic emissions factors.
- Market-Based Accounting: Some companies use market-based and intervention-level accounting for scope 1 and 3 emissions without full transparency or agreed-upon rules.
Conclusion
To enhance private sector action on climate change, there is a need to align corporate GHG accounting practices with the principles and processes outlined in the Paris Agreement. This alignment will help improve accountability, provide clarity on progress, and facilitate broader private sector investment through market-based accounting approaches.