Unit 3: Building a Sustainable Financial System - International, National, Industry and Institutional Responses Flashcards
What are the different actors in building a sustainable financial system?
Intergovernmental organisations
National governments
Central banks and financial regulators
International financial institutions (IFIs) and multilateral development banks (MDBs)
Scientific and environmental organisations
Non-governmental organisations (NGOs) and
Financial services firms
How many countries have joined the race to zero? What % of CO2 do they account for?
The UN has mobilised a large global alliance of initiatives linked by an ambition to achieve ‘net zero’. As of August 2021, 120 countries have been joined by 733 cities, 31 regions, more than 3,000 businesses, more than 170 of the largest investors and more than 600 universities, accounting for some 25% of global CO2 emissions and over 50% of global GDP in the “Race to Zero”. All have made a commitment to achieving ‘net zero carbon emissions’ by 2050 at the latest.
What is Net Zero? What is Net Zero Carbon Emissions?
Net Zero: Balances carbon dioxide and other greenhouse gas emissions from production and other activities released into the atmosphere with equivalent amounts captured and stored, and/or offset (for example, through buying carbon credits).
Net Zero Carbon Emissions: Balances carbon dioxide emissions from production and other activities released into the atmosphere with equivalent amounts captured and stored, and/or offset (i.e. focuses on carbon dioxide only, not other greenhouse gases).
What is Carbon Neutral? What is Climate Neutral?
Carbon Neutral: A synonym for ‘net zero carbon emissions’ (i.e. focuses on carbon dioxide emissions only).
Climate Neutral: A synonym for ‘net zero’ (i.e. includes carbon dioxide and other greenhouse gases).
What is Zero Carbon?
No carbon is emitted through production or other activities; therefore, no carbon needs to be captured or offset.
What is Negative Emissions?
The activity of removing carbon dioxide from the atmosphere. Technologies used include afforestation and reforestation, soil carbon sequestration and direct air capture.
What are the three major international agreements focusing on limiting average global temperature increases and combatting climate change?
- UN Framework Convention on Climate Change
- Kyoto Protocol
- Paris Agreement
What is the UN Framework Convention on Climate Change?
Agreed in 1992, and ratified by 197 parties to the Convention, the United Nations Framework Convention on Climate Change (UNFCCC) is the main international treaty on fighting climate change. Its objective is to prevent dangerous human-made interference with the global climate system.
The Conference of the Parties, generally known as the COP, is the governing body of the UNFCCC. The COP meets annually to review the implementation of the Convention and agreed climate change instruments, and to provide a forum for the negotiation of new climate change agreements and policies. At COP21, held in Paris in 2015, the Paris Agreement was finalised and announced.
What is the Kyoto Protocol?
Before the Paris Agreement came into effect in 2020, the world’s only binding instrument for cutting greenhouse gas emissions is the 1997 Kyoto Protocol. The Protocol has been ratified by 192 of the UNFCCC Parties, but some major emitters of greenhouse gases either failed to ratify (in the case of the United States) or were considered developing countries that had no legal obligations to reduce emissions (in the case of China and India, although India subsequently joined in 2017). This meant that the Kyoto Protocol covered in its 1st period, only about 12% of global emissions. Two commitment periods were agreed:
1st period (2008-12) – industrialised countries committed to reduce emissions by an average of 5% below 1990 levels.
2nd period (2013-20) – parties who joined in period (including India) committed to reduce emissions by at least 18% below 1990 levels.
What is the Paris Agreement?
The Paris Agreement of December 2015 was the first-ever universal, legally-binding global climate agreement. By March 2021, 191 of the 197 UNFCCC countries had ratified the Agreement, and the US had re-joined after pulling out during the Trump administration.
The Agreement provides a pathway to limiting global temperature rises to below 2 degrees Celsius and seeks to limit such increases to 1.5 degrees Celsius. It is for each country, however, to determine the action they will take on climate change mitigation and adaptation. As a result, many national governments have transcribed their own targets into law through national legislation.
Under the Paris Agreement, each country has to submit its plans for climate action, aligned with the Agreement’s objective. These are called Nationally Determined Contributions (NDCs)
What is UNEP FI?
The key global alliance aiming to align the finance sector with the objectives of the Paris Agreement and the UN Sustainable Development Goals is the United Nations Environment Programme Finance Initiative (UNEP FI).
UNEP FI is a partnership between the United Nations Environment Programme and the global financial services sector, created at the 1992 Earth Summit with a mission to promote sustainable finance. Over 350 financial institutions, including banks, insurers and investors, are members and work with UNEP FI to understand environmental and societal challenges, why they matter to finance, and how to actively participate in addressing them.
What are the three long-term initiatives created by the UNEP FI?
- Principles for Responsible Investment (PRI)
- Principles for Sustainable Insurance (PSI)
- Principles for Responsible Banking (PRB)
What is PRI?
n early 2005, the United Nations Secretary-General invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). Launched in 2006, the PRI are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating environmental, social and governance issues into investment practice.
As of 2021, the PRI have more than 3,800 signatories, representing more than US $100 trillion in assets under management.
What is PSI?
Launched at the 2012 UN Conference on Sustainable Development, the Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities. The Principles are the largest collaborative initiative between the UN and the insurance industry.
As of 2021, 140 organisations have adopted the PPSI, including insurers representing approximately 25% of world insurance premium volume.
What is PRB?
The Principles for Responsible Banking (PRB) provide a framework for banks to incorporate green and sustainable finance principles and practice in their business models, aligning their strategies and operations with the UN Sustainable Development Goals and the objectives of the Paris Agreement.
Launched in September 2019, at the UN General Assembly, by 2021 the number of signatories had grown to more than 240 banks, representing around 40% of global banking assets and serving some 2 billion customers. The Chartered Banker Institute was one of the first stakeholder bodies to endorse the PRB.
What is GFANZ? What are GFANZ aims?
In April 2021 the Glasgow Financial Alliance for Net Zero (GFANZ) was launched. GFANZ will co-ordinate the work of these existing UN Net Zero initiatives, and potentially other groups, based around a common commitment from members to:
(a) align lending and investment portfolios with net zero emissions by 2050;
(b) set 2030 interim targets for emissions reduction; and
(c) using science-based guidelines to achieve these.
GFANZ aims to promote integration, not proliferation, of existing initiatives and groups.
