In Madrid, 25 years after 197 parties signed the United Nations Framework Convention on Climate Change (UNFCCC), and 4 years after the extension treaty of the Paris Agreement this is a “Time for Action” and to understand and agree on the financing of climate action worldwide.
Are individual actions enough to meet the goals of the Paris Agreement, or is time for real action from the business sector and governments? Investors and companies are stepping up climate ambition to achieve sustainable cities and low-carbon businesses. At the 25th Conference of the Parties (COP25), in Madrid, how to invest in climate or how to be climate positive was on the centre of the discussion and there were very different views on how to do so.
To keep the global temperature rise below 2°Celsius above pre-industrial levels and pursue efforts to limit it under 1.5°C, global carbon emissions need to reach net zero by 2050. Scenarios to reach either 2°C or 1.5°C require increased efforts to 2030.
Before the COP25, on the September Climate Action Summit, in New York, more than seventy countries, a hundred cities and almost ninety multinational companies committed to net zero carbon emissions by 2050, even if major emitters have not yet done so. In Madrid 631 institutional investors, that in total manage over $37 trillion in assets, are calling on governments across the world to step up, through a statement signed on the 9th of December at the COP25.
The commitment is there. Now, is it possible?
“Climate neutrality and net zero for 2050 is the number one agenda of the European Commission. The question is how do we finance this transformation when the sense of urgency has already exploded. The only strategy possible to do so is through technological change, economic growth and modernization.”, affirmed Mauro Petriccione, Director-General for Climate Action of the European Commission, at a COP25 side event.
Luis Castilla, CEO Infrastructure at ACCIONA, explained that the energy sector is responsible for 55% of global emissions, while the remaining 45% is due to our consumption habits. The objective of reduction in products by 2050 will only be met through emerging technologies, carbon sequestration and, in great part, through circular economy. Under the current linear model cities consume 75% of our resources, produce 50% of waste and emit between 60 to 80% of greenhouse gases.
In a circular economy model waste must be transformed, through innovation, into potential by-products or other materials, which promote reuse, recovery and recycling. This way product life cycles are optimized, from design to consumption over the life of the product, to the production process and correct management of residual waste.
For Luis Castilla, the European Union can take the lead, although for that to happen there have to be clear and ambitious policy frameworks to turn goals into investable projects, since “investors are willing to unlock further capital and there is the need for the private sector to step in.”
According to the UN Sustainable Development Solutions Network achieving the Sustainable Development Goals (SDGs) will likely require an estimated US$2.4 trillion/year of additional investment, especially on infrastructure, which can only be achieved through blended finance between public and private sectors.
Peter Damgaard Jensen, CEO at Danish Pension Fund (PKA) and Chair of the IIGCC, explains why investors are engaged on climate change, “The fact is without greater action, in a long-term, temperature is expected to rise approximately 4oC, which represents a global economic growth of US$23 trillion over the next 80 years. On the other hand, with climate change-driven investment, there could be a global economic benefit of US$26 trillion by 2030.”
There is a common agreement that turning the solution onto people instead of the environment works. Climate change policy action can be put on numerous ways, and it can be a way to improve people’s lives, and this can be a way to get investment to cities.
Veronica de la Cerda, CEO at TriCiclos Chile, a B-Corp dedicated to design and practice of circular economy solutions, when it comes to management of product life cycles, “To get investment there is a need to convey the purpose you are working on and find the right tools for investors to want to invest in you. Also, it is important to try filling the gap of knowledge between you and investors. You have to convince them there is a problem and you are the one with the key to solving it.”
What about action? – The concept of Climate Positive
Although it can be confusing since climate positive is sometimes used to define the same thing as carbon negative, in this case, the meaning of climate positive is different. The World Wildlife Fund (WWF) created the Climate Positive Framework in collaboration with several companies, such as IKEA, H&M, Max Burger, Mahindra, and many others who have accepted the challenge. These companies are committed to achieving a net zero state by 2040, at the latest, by setting climate targets for the entire value chain, enabling and encouraging customers to make conscious decisions on the products they buy.
“Collaboration is critical. COP21 was a call to action and COP25 is time for action. Companies are approaching this climate positive opportunity firstly as a way to address a deep decarbonize for the business itself, and then for the whole supply chain. The goal is to have a clear definition of climate positive by the time of COP26, focusing that climate action needs to be measurable, transparent, science-based and applicable globally”, stated Mark Griffiths, Global Leader Climate Business Hub of WWF.
Collaboration is critical. COP21 was a call to action and COP25 is time for action.
As for Inter IKEA Group, their footprint is focused mainly on materials, that are responsible for 36% of the emission. Product use, customer travel and home deliveries and production are the ones that come next in the list.
Torbjörn Lööf, CEO at Inter IKEA Group sets the goal of having only renewable and recycled materials and “turn our business into climate positive and circular by 2030,” and as for today IKEA already has 60% renewable and 10% recycled materials, and 91% of IKEA wood comes from well-managed forest, as well as investment is put on reforestation.
“There will not be a business if we don’t invest in this,” Lena Pripp-Kovac, CSO at Inter IKEA Group, alerts, “the impact is already reaching the supply chain and a lot of countries where our clients are already aware of this reality and demand for climate based solutions.”
Although the future looks good, and the commitment real, being IKEA and Max Burger truly examples of positive action, there is a concern that some companies use this concept and become climate positive only by buying offsets. This can be seen as a way to show action without really reducing the greenhouse gas emissions associated with the company’s direct operations. Nevertheless, as companies’ decarbonizing strategies grow, they tend to include more direct actions and rely less on offsets.
The term offsets refer to credits that are earned or bought by investing in projects that reduce greenhouse gas emissions, such projects of protection of forests or converting methane from livestock. Although for many companies, buying offsets can be the first step to make bigger climate positive decisions and can be an important start.
The term offsets refer to credits that are earned or bought by investing in projects that reduce greenhouse gas emissions, such projects of protection of forests or converting methane from livestock. Although for many companies, buying offsets can be the first step to make bigger climate positive decisions and can be an important start.
We are businesses, so we will continue to measure success through growth. However, for us, the objectives of being a climate positive business are very clear. In the short run as a way to be more competitive, in the medium term as a way do decarbonize and be ahead of the carbon regulations and in the long run as a way to continue in business.”, reassured Anirban Ghosh, CSO at Mahindra.
Joana Diogo YRE Portugal
