Chapter 2: The Paris Agreement, 1.5 Degree Target versus Net Zero Target

2.1 So What is to be Done? The Paris Climate Agreement

In 1994 when the United Nations Framework Convention on Climate Change (the UNFCCC) entered into force. Today, it has near-universal membership. The 197 countries that have ratified the Convention are called Parties to the Convention.

At a Conference of the Parties (COP 21) in Paris, on 12 December 2015, the Parties to the UNFCCC reached a landmark agreement to combat climate change and to accelerate and intensify the actions and investments needed for a sustainable low carbon future. The so-called Paris Agreement33 builds on the Convention and – for the first time – brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects, with enhanced support to assist developing countries to do so

“Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature
increase to 1.5°C above pre-industrial levels (THE TARGET), recognising that this would significantly reduce the risks and impacts of climate change”.

Pre-industrial baseline level of zero (0) is taken to be the average of the period 1850 – 1900

Nationally determined contributions (NDCs)

in accordance with best available science, so as to achieve a balance between anthropogenic emissions by sources and removals by sinks of GHGs in the second half of this century.

2016 produced a new world record of
1.25°C above the baseline and therefore heading dangerously close to the Paris target

Worse news is that Europe, was at 1.6°C above the long-term average compared with 2019 which was ‘only’ 1.2°C which was already a record.
Siberia and other parts of the Arctic were exceptionally warm, at 3-6°C above average.

Later in 2021, North West Canada experienced an unprecedented 50°C ambient temperature.

Wildfires in Australia and the US (in California the impact of the heat bankrupted the power utility PG&E) , were amongst the most destructive in history,

a large part of the Texas grid was knocked out by frozen wind turbines and solar panels and poorly winterized natural
gas equipment.

In February 2021, Carbon Brief reported:

The combined emissions cuts of the new pledges are only around 3% lower by 2030 than the previous round of pledges submitted by those nations in 2015

2.2 What does ‘net zero’ mean? And would it achieve ‘1.5 °C’?

Article 2.1c ‘ Making finance flows consistent with a pathway towards
low greenhouse gas emissions and climate-resilient development.

management of climate risk to asset portfolios

net zero is about the real economy – ensuring decarbonisation and
hence reducing the intensity of climate change

– while management of portfolio climate risk is, at present, mostly about minimising the risk of loss to asset owners (including bank shareholders) from the energy transition

‘net zero’ is only a mechanism to try to achieve 1.5 °C

Even achieving it by 2050 does not guarantee success with the
temperature target for the world

Simply selling portfolios of high carbon assets to another investor would not limit global warming

ESG ratings while they do incorporate climate finance issues, are wider than climate change risk and also are not designed to ensure a timely transition of the corporate sector as they are more about portfolio risks

t investment strategy in banks, asset owners, asset managers and insurers (the asset side of the balance sheet) and underwriting strategy in insurers (the liability side of the balance sheet), have to be aligned with a decarbonisation pathway consistent with a maximum 1.5 °C of warming. B

A new framework for net zero investing announced earlier this week was developed by the Institutional Investors Group on Climate Change (IIGCC). Pacific Investment Management Co. and Fidelity International

s. But research from ETH Zurich finds the organization has had a limited effect, largely because it relies on voluntary reporting.
The authors found companies that used the framework focused on the two TCFD categories that were least important for slowing climate change— governance and risk management
—while neglecting to provide much detail on strategy, metrics and targets that can have a far bigger impact on the planet.

saying that by holding assets which were ‘clean’ as well as those which were ‘dirty’, Brookfield was avoiding emissions and thereby contributing to reducing the rate of global warming. However, if all that Brookfield did was to purchase existing clean assets, nothing in the real world changed.

• Alignment of value chain GHG (Scope 3)39 emissions often remains a blind spot.
• Long-term ambitions need to be backed by clearer strategies and robust short- and mediumterm targets.
• Future investments need to be more clearly aligned with the net zero transition.
• Corporate boards and executive management teams need to improve climate change governance
• Ambitious 1.5-degree pathways are often missing from climate scenario planning.

The Finance Industry Transition to Sustainability: Climate Science, Societal Issues, Regulation & Accounting