A growing number of financial institutions are making commitments to set Paris Agreement-aligned, or SDG-aligned portfolio targets. The Paris Agreement stipulates that countries make financial flows consistent with a pathway toward lower greenhouse gas emissions with the objective to become carbon-neutral by 2050.
Sustainable finance has two major objectives. The first is to manage sustainability-related risks for the financial industry, e.g., physical climate risks or risks arising from the transition of our economic systems to a more sustainable future. Risks can arise from several directions. One of the main concerns of today’s risk managers are stranded assets. These are assets which will devalue in the long-term because demand may decline with changes in regulation, production processes, and consumer preferences.
The second objective is to enable the shift of investments from unsustainable to sustainable economic activities in investment portfolios as well as in the real economy. The transition will require large amounts of capital. The International Energy Agency just published a report where it found that roughly $5 trillion would be required yearly to achieve the transition to sustainability in the energy sector alone. Consequently, there are a lot of chances or investment opportunities.
During this side event, panelists will discuss some of the challenges emerging economies and developing countries may face in managing risks arising from the transition; and in mobilizing finance to support our sustainable development goals and carbon neutrality.