The fifth anniversary of the Paris Agreement is giving investors reason to reflect on what has been accomplished and what more it will take to achieve the central goal of addressing climate change by limiting global warming to below 2 degrees Celsius.
The legally binding international treaty adopted by 196 parties in Paris, which went into effect in Nov. 12, 2016, calls on countries to limit greenhouse gas emissions to achieve a climate neutral world by 2050. The agreement works on a five-year cycle of increasingly ambitious climate actions by countries.
Five years ago at the signing of the agreement, "the markets' response was markedly muted, with carbon, coal and oil prices virtually undisturbed," said Michael Wilkins, global head of research and analytics, sustainable finance for S&P Global Ratings, in an emailed statement.
Fast forward to the present, Mr. Wilkins said, countries and companies are making sweeping net-zero commitments, there is exponential growth of the green finance market estimated to surpass $300 billion this year and visible divestment from fossil fuels, climate ambitions are scaling up toward a more ambitious 1.5 degrees Celsius global warming limit, President-elect Joe Biden pledged to rejoin the agreement and China set a "peak carbon" goal by 2030.
"But, critically, we are not currently on track for even the original 2 degrees Celsius target," which would take a tenfold reduction, Mr. Wilkins said.
"The direction we take will be partly influenced by COVID-19 pandemic recoveries. Global lockdowns have provided short-term relief with largest drop in greenhouse gas emissions in 12 years and have altered the three core drivers of emissions — macroeconomics, behaviors, and policy – that combined, will lower energy sector carbon dioxide emissions by 27.5 gigatons over the next 30 years."
Still, he said, "sizable emissions reductions are possible — and recent net-zero policy targets announced by the EU, South Korea and the U.S. provide a glimmer of hope as even if not wholly fulfilled, we could see emissions curtailed by several gigatons in these countries. Substantial green investment that both funds defined environmental objectives and adheres to established guidelines will be crucial to maintaining the markets' confidence in supporting this global decarbonization effort."
The transition to a net-zero emissions economy is "one of the biggest investment opportunities of the 21st century," Ceres CEO and President Mindy Lubber said in a separate statement. Global asset managers have a critical role to play in it, she added.
At a virtual Climate Ambition Summit co-hosted by the United Nations Framework Convention on Climate Change on Friday, UNFCCC Executive Secretary Patricia Espinosa said that 2021 will be an important year for the Paris Agreement.
"Against the backdrop of growing ambition," Ms. Espinosa said in a message to attendees, "nations must move from discussions about how the agreement works, to how they will fully implement it in their countries and how the most vulnerable countries will be supported in this over the long-term."