On December 12th, 2017, world leaders met in Paris for the "One Planet Summit" at the invitation of French President Emmanuel Macron, UN Secretary-General Antonio Guterres and World Bank President Jim Yong Kim. With around 50 heads of state and government in attendance, the summit marked the 2-year anniversary of the adoption of the historic Paris Agreement. It provided government and business leaders with a platform to make new announcements on how they intend to accelerate the implementation of that agreement, and in particular how they will mobilize the necessary investments. Finance was thus at the centre of the summit. But do any of these new announcements matter? Will they make a difference, particularly for the poorest and most vulnerable developing countries?
The Paris Agreement contains two overarching objectives on finance. On the one hand, it confirms the obligation for developed countries to provide financial resources to assist developing countries with respect to climate change mitigation and adaptation (Article 4). Such support should increase over time and be disbursed in a balanced way between adaptation and mitigation. In Paris, the objective of mobilizing US$ 100 billion annually for this support by 2020 was confirmed; until 2025 support should then continue at this scale before the US$ 100 billion objective is replaced with a new target for the period after 2025. On the other hand, the Paris Agreement also stipulates an objective that goes much beyond dedicated climate-finance flows from developed to developing countries. Article 2.1 (c) sets the objective of "making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development". This refers to all finance flows, public and private, between and within countries, in the global North and South. This objective is about shifting the trillions of global financial flows away from "brown" investments that threaten climate stability to "green" investments that support climate compatible development. Both of these objectives contained in the Paris Agreement are crucially important to the address the global climate crisis and one cannot replace the other.
At the One Planet Summit, the focus was mainly on the second objective, shifting the trillions. Of course, some parts of the summit were more about show than about substance and some of the announcements were only clever repackaging of existing commitments. But many other commitments announced at the summit were new and significant. Three examples:
- The world biggest insurance company, AXA, not only announced to further decrease its investments in coal and increase investments in renewable energy, but also committed to not underwriting new coal and tar sand projects anymore. This is the first time a major insurer not only commits to a change it the way it invests e.g. their customers' life insurance money, but also to a change in its core business of offering insurance.
- The World Bank announced that after 2019, it will no longer invest in upstream oil and gas projects. The bank has already stopped investments in coal projects a few years ago and is now drawing consequences from the fact that we also need to restrict the use of other fossil fuels. Given that most fossil fuels need to stay under the ground, there is no room for new fossil fuel exploration projects in a climate-safe future.
- 225 large institutional investors that are manage over US$ 26 billion in assets committed to put more pressure on the companies in which they invest to encourage them to reduce their emissions and develop business strategies for a carbon-neutral future. The includes a commitment by the investors to require the large emitting companies in their investment portfolio to transparently disclose their climate risks and strategies, in line with the recommendations from the Task Force on Climate-related Financial Disclosures.
These initiatives send a clear signal that a shift of investments from brown to green is beginning. These were announcements by frontrunners - which also implies that global investments as a whole are not yet aligning with the Paris Agreement. One important message from the summit therefore was: Others now need to follow the lead of the frontrunners - and follow quickly.
From the perspective of vulnerable developing countries, these initiatives are very welcome, as they increase the chances that global warming can be kept to 1.5° Celsius, the ambitious goal included in the Paris Agreement. This would avoid many devastating impacts that would be felt most strongly in the poorest countries and by the most vulnerable populations. However, the poorest countries also need rapid progress on the other finance objective included in the Paris Agreement, namely developed countries providing sufficient support, in particular for adaptation.
The One Planet Summit made limited progress on this front, for example with an announcement from the United Kingdom to provide an additional GBP 140 million for adaptation. But much more will remain to be done. UN Environment estimates that current adaptation costs are already two to three times higher than current international public funding for adaptation. This gap risks to widen, given that adaptation finance needs in developing countries could reach US$ 140 to 300 billion annually by 2030 and that donor nations have projected to provide US$ 20 billion annually by 2020, with unclear perspectives for the following decade. Governments will need to address the imbalance between mitigation and adaptation and the adaptation finance gap. Upcoming negotiations in the context of the United Nations Framework Convention on Climate Change (UNFCCC) and the replenishment of the Green Climate Fund will provide the right opportunities to do so in 2018.