What the World Bank can do about climate change

What the World Bank can do about climate change

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What the World Bank can do about climate change

8 May 2023

NEW HAVEN — Few institutions have shown as much versatility and adaptability as the World Bank. Initially founded to address global capital-market imperfections after World War II, the institution’s primary mission evolved over time to focus on fighting extreme poverty. But now that the World Bank is welcoming a new president this July, it should adapt again, this time to address climate change.

Poverty reduction, of course, should remain a high priority, considering that the COVID-19 pandemic has left many low-income countries in dire straits. But climate change has emerged as an equally important threat to these countries’ futures, as well as to the entire planet. Poverty reduction therefore must go hand in hand with the goal of addressing climate change.

But grounding these efforts in evidence-based research is easier said than done. One often hears that low-income countries should focus on climate change because they have the most to lose from its consequences (natural disasters, soil degradation, water shortages, and so forth). That conclusion may be right; but the argument is flawed, because it is based on a spurious comparison.

Policymakers in poor countries do not care whether they have more to lose compared to richer countries. Rather, their focus is on weighing policies that promote growth but harm the environment against green policies that may imply slower or even no growth. To paraphrase what one such official once told me when I questioned the wisdom of his government’s strategy to encourage oil and natural-gas extraction: “Who cares what the long-term trend is? We can do this for ten years, grow rich and then move on to other activities while using the proceeds to clean up.”

The wastefulness of this approach is self-evident, as are the large negative externalities it entails for the rest of the world. But the tradeoff for many low- and lower-middle income countries is real, especially when, like India and Indonesia, they are rich in coal deposits or, as in Nigeria, oil reserves. Giving up on growth in return for a cleaner, greener future is not something that many policymakers in such countries find acceptable.

Still, there is scope for considerable improvement, and the World Bank has the financial resources, credibility and convening power to make a substantial contribution. To do so, it must ensure that decisions are based on the best available evidence, rather than on untested claims or first principles. Policymakers and advisers should study the experiences of countries that have successfully reduced greenhouse-gas emissions, as well as absorbing the emerging body of academic research focused on developing countries.

For example, the US experience shows that emissions reductions were the result of stricter environmental regulation, not the outsourcing of “dirty” production activities to developing countries (the so-called pollution-haven hypothesis). This implies that carbon border adjustment taxes, often justified on a notional “leakage” hypothesis, will do little to improve emissions in advanced economies. Worse, they may deal a severe blow to some low-income countries’ exports. The lesson from the United States, then, is that a path to a greener planet should start with stricter environmental regulation.

Recent research by the Nobel laureate Economist Esther Duflo and co-authors offers a second, related lesson, based on data from one of the biggest polluters in the world: India. Contrary to what many may think, India has some of the strictest environmental regulations in the world. What it lacks is the ability to enforce them. Weak state capacity, reflecting inadequate institutions, unreliable contract enforcement, or outright corruption, can nullify the effectiveness of environmental regulations.

Duflo’s team shows how devising proper mechanisms to address these constraints can significantly improve emission outcomes. It is precisely here, in the design and implementation of policies to address institutional shortcomings, that the World Bank could add enormous value.

Another recent paper reports on a bold, decade-long effort by a team of researchers, in cooperation with the Indian state of Gujarat, to introduce India’s first cap-and-trade programme (it also happens to be the world’s first market-based programme to regulate particulate emissions). Remarkably, they find that the programme functioned smoothly and produced significant emissions reductions as well as cost savings (relative to an alternative, command-and-control-based regulation).

Such results are extremely promising. Interventions to create “markets” for emissions have proven successful in the US and Europe. If such programmes can take root in developing countries, a truly global solution to climate change will be within reach. Moreover, if just a couple of research teams can make so much progress, imagine what the World Bank could achieve with all its resources, expertise, and access to top policymakers.

Perhaps the most encouraging message from recent research is that interventions that meaningfully improve environmental outcomes in developing countries need not be excessively expensive. Another recent paper examines why India, with its generally warm climate and plentiful sunshine, has been slow to deploy solar panels. It turns out that local governments’ inability credibly to commit to the contracts they sign with producers impedes investment. Once investments in a solar plant are made, state governments have a strong incentive to renegotiate. Because solar suppliers anticipate this, investment in green energy ultimately falls short of where it could be. Intermediation by the federal government could help, resulting in much higher solar adoption.

Such examples show that substantive progress toward de-carbonisation in low- and middle-income economies is feasible without bankrupting the country or halting growth. But success requires knowledge, perhaps even more so than money. Hitting poorer countries with punitive carbon taxes, which even advanced economies like the US have been reluctant to adopt, should be a non-starter. Encouraging the green-energy transition with policies tailored to the institutional constraints prevalent in low-income settings is much more promising.

The World Bank has always prided itself on being not just another “bank”, but rather a “knowledge bank”. As it develops its climate agenda, it must remain true to that credo by adhering to the lessons of rigorous research and evidence.

Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is professor of Economics at Yale University. Copyright: Project Syndicate, 2023.

 

 

www.project-syndicate.org

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Global economic uncertainty means oil prices will continue to surprise

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Global economic uncertainty means oil prices – and your fuel bill – will continue to surprise us all this year.  Let us hear what Carole Nakhle says about it.

The image above is on Oil price uncertainty. Holmes Su/Shutterstock

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Global economic uncertainty means oil prices – and your fuel bill – will continue to surprise this year

By Carole Nakhle, University of Surrey

Oil prices have confounded expectations in the first quarter of 2023. Brent – a major global benchmark – hit a low of US$72 (£58) a barrel on March 17, while the world’s other main benchmark, WTI, dropped to less than US$66 a barrel. This is a far cry from the nearly US$114 and US$103 a barrel, respectively, reached on the same day a year before following the invasion of Ukraine by Russia, a major oil producer.

These unexpectedly low prices remain even as the war in Ukraine continues with no clear end in sight. Other developments have also failed to boost prices as expected. China, the world’s largest importer of crude oil, abandoned its zero-COVID policy in December 2022, creating expectations that Chinese oil demand would quickly return with a vengeance, propelling prices higher. A couple of months before this, OPEC+ (the cartel of certain oil-producing nations) had announced a production cut of 2 million barrels a day (mb/d) – roughly 2% of world supply and the largest cut since 2020.

A surprise announcement of 1.1 mb/d of cuts by OPEC+ on April 2 did boost prices. On top of a 0.5 mb/d decrease announced by Russia in February, this has brought the group’s cuts to 1.6 mb/d. And by mid-April Brent reached US$86 and WTI US$83 per barrel.

But oil has now started to retreat again, an unexpected development during a war involving a major oil exporter, and at a time when a giant consumer like China is reopening after three years of economic isolation.

This shows that oil price forecasts continue to be unreliable. The economic outlook and Chinese consumption growth are key to demand expectations, while Russia is the wild card in terms of supply. Until uncertainty around these three factors dissipates, global oil markets will not have a clear direction.

Oil price movements:

US Energy Information Administration, Bloomberg, Author provided

Economic outlook

Oil demand is closely linked to economic growth because a slowing economy shrinks income, leading people to curtail expenditure and travel less, and slowing down manufacturing that uses oil. Various economic forecasts have recently highlighted the major challenges facing the global economy, but widely prevailing uncertainty seems to top the list.

In its April 2023 World Economic Outlook, the International Monetary Fund (IMF) emphasised a high level of uncertainty “amid financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID”.

The World Bank has also warned that “a lost decade could be in the making for the global economy” as “nearly all the economic forces that powered progress and prosperity over the last three decades are fading”.

April’s OPEC+ Monthly Oil Market Report kept its forecast for economic growth and oil demand largely unchanged from previous reports, but said: “The global economy will continue to navigate through challenges including high inflation, higher interest rates particularly in the Eurozone and the US, and high debt levels in many regions.” It stated that “these uncertainties surrounding current oil market dynamics” were behind its decision to cut production.

Prince Abdulaziz bin Salman Al Saud (centre), minister of energy, industry and mineral resources of the Kingdom of Saudi Arabia, speaks at an OPEC press conference in Vienna, Austria, October 5 2022. Christian Bruna/EPA-EFE

The China factor

China is the world’s second-largest oil consumer and the second-largest economy after the US. So all eyes have been on its oil demand since the country ended the nearly three-year zero-COVID policy that severely restricted its peoples’ mobility and economic activity.

Today, it is the main bullish factor in many global economic forecasts. The IMF’s managing director recently said:

China this year is going to contribute about one-third of global [economic] growth. We calculated that 1% more growth in China translates into 0.3% more growth for the economies that are connected to China.

The IEA believes China will account for half of the global increase in oil demand this year. Goldman Sachs expects China’s oil demand growth to boost Brent by roughly US$15 per barrel.

However, such enthusiasm is not universally shared. A Citibank report says China’s post-COVID recovery seems slower than expected. Being an export-driven economy, the Asian powerhouse is exposed to the health of the rest of the world. A weakening global economy will reduce demand for Chinese exports, with negative repercussions on its economy and therefore oil demand.

Similarly, China’s National Bureau of Statistics said “the external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet”. Or, as the Saudi energy minister reportedly said when asked about an oil demand rebound recently: “I’ll believe it when I see it.”

Russia: not done yet

As a major oil producer and exporter, Russia also has a massive influence on global oil markets. Despite sanctions since the beginning of the war in Ukraine (and following the annexation of Crimea in 2014), Russia continues to be the world’s third-largest oil producer after the US and Saudi Arabia.

When Russia invaded Ukraine, oil prices spiked due to fears of a loss of Russian supply. The IEA warned the resulting 3 mb/d loss (around one-third of Russia’s total and almost 3% of world production) could produce “the biggest supply crisis in decades”. Analysts from investment bank JP Morgan said Russia could cut up to 5 mb/d of production driving global oil prices to a “stratospheric” US$380 per barrel.

Such gloomy scenarios did not materialise. Russian oil continued to flow but changed direction from Europe to Asia, helping to ease price pressure for consumers everywhere. And Russia’s cuts in retaliation for sanctions have so far been smaller than expected. Of course, it could cut more, especially if this would put more economic pressure on the west and affect support for Ukraine.

This cocktail of uncertainties should encourage a more cautious stance when it comes to predicting oil prices, this year at least. Some analysts have already reduced their 2023 price forecasts, with estimates varying between US$81 and US$100 a barrel.

Expect more revisions. As one study that tracked the evolution of oil prices over four decades said: “all price expectations are subject to error”.

Carole Nakhle, Energy Economist, University of Surrey

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Are UN Sustainable Development Goal ETFs fit for purpose?

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ETF Stream‘s question: Are UN Sustainable Development Goal ETFs fit for purpose? It seems incongruous, but only the reply can justify such interrogation.   

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Are UN Sustainable Development Goal ETFs fit for purpose?

 

The goals look ready-made for thematic funds, but can they be properly aligned to an investment framework?

By Theo Andrew

The Sustainable Development Goals (SDG) continue to capture the imagination of ETF issuers but questions have been raised about the ability to properly align them to an investment framework.

Used by both active and passive funds, they were thrust into the spotlight again in January after DWS launched a seven-strong range of thematic ETFs targeting the SDGs it believes “present a growth story”.

Other ETF issuers have also launched products tracking SDGs, albeit not so inextricably linked to the goals, including the L&G Clean Water UCITS ETF (GLUG), the iShares Global Water UCITS ETF (IH20) and the BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF (REUSE).

The goals comprise 17 interlinked objectives, including no poverty, zero hunger and clean water and sanitation, which aim to serve as a blueprint to advance global progress for “peace and prosperity” for the planet.

However, while offering a strong narrative to pitch to investors, many have questioned the validity of using the SDGs as an investment framework.

Kenneth Lamont, senior fund analyst at Morningstar, said he understood some of the concerns around using SDGs as an investment framework but added it was part of a broader problem around impact investing with ETFs.

“The question mark hanging over SDGs is part of the broader question of whether you can use ETFs to invest impactfully. Investors need to be able to measure that impact, that is the goal of the investment,” he said.

“Generally, it is questionable whether investors can ever have a real impact by investing in listed stocks.”

Stuart Forbes, co-founder at Rize ETF, agreed, adding the SDGs were not designed for public or private market investment.

“The way the goals are measured is through a series of indicators such as decreasing deforestation and habitat loss. It would be almost impossible to assess a company’s contribution to forestation in Brazil or Indonesia,” he said.

“The further you go with SDGs from an investment and thematic perspective, it is just not possible to align.”

Forbes said Rize ETF explored the idea of launching products linked to the goals, looking at SDG alignment tools, but that they “just do not make any sense”.

“Looking at what the funds are holding, they are almost all developed market economies, they are not servicing an underserved region of the world or having a significant social impact,” he added.

For example, DWS uses MSCI’s SDG alignment tools designed to provide a “holistic view” of companies’ net contribution towards addressing each of the SDGs.

However, Lamont added the thematic element of the SDGs is what makes them attractive. For example, he noted GLUG’s thematic approach, investing in companies’ infrastructure and technology.

“I find GLUG interesting because it does focus a lot on water technology. It is a completely different set of stocks that are actually trying to solve the problem. It is much more of a thematic approach than the traditional water sector fund.”

DWS also includes a thematic element to its SDG range, with sustainable revenue accounting for 75% of the MSCI indices it tracks, while the remaining 25% will be calculated using forward-looking thematic metrics.

Speaking to ETF Stream ahead of the launch in January, Olivier Souliac, senior Xtrackers product specialist at DWS, said it chose not to do all 17 SDGs due to the inability to align them all within an investment framework.

“The reason we have a revenue-based approach is that some of the SDGs such as zero hunger and education can only really be filled by society and governments and are not themes in the sense of being growth stories,” he said.

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Risk and resilience in the era of climate change

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In its article on Risk and resilience in the era of climate change, Brookings concludes that the ‘need is more significant than ever for regional and global cooperation in generating climate finance and scaling up investments in climate mitigation and adaptation’.

Risk and Resilience in the Era of climate change

 

By Vinod Thomas, Distinguished Fellow – Asian Institute of Management, Manila. Former Senior Vice President – World Bank

 

Once thought to be sporadic and only affecting faraway places, the profile and timetable of climate change have changed dramatically to be on the calendar of every country. Take the forecast that sea levels along the U.S. coastline will rise by a foot over the next 30 years—as much as the increase in the previous 100 years—wreaking havoc in low-lying regions. Faced with such trajectories, it will no longer be enough to cope and build back after disasters, but governments, businesses, and individuals need to anticipate and “build forward”—the central message of “Risk and Resilience in the Era of Climate Change,” published on April 4.

That the climate danger no longer lies over the horizon is vividly shown by extreme weather aggravated by climate change already destabilizing energy supplies and creating shortages (Figure 1). This, coupled with the demand for more cooling during unseasonably hot summers, is stoking energy insecurity, prompting even greater fossil fuel use—as Europe and South Asia have seen in recent months—driving up effluents and worsening the climate crisis. If this continues, “circuit breakers,” such as a cross-country moratorium on new oil, gas, and coal projects will be needed—and accompanied by a very aggressive push for renewable sources—to avert a full-blown climate catastrophe.

Figure 1. Climate, energy and a downward spiral

fig 1

Source: Author

Precious decades have already been lost to decarbonize to a level that will avert catastrophic climate change. Now, nothing short of transformational change is needed to alter the pattern of economic growth to a more environmentally sustainable one. That includes mainstream economic policy—and the theories that go with it—to abandon the obsession with short-term gross domestic product (GDP) growth. The targeting of this at all costs led to a mentality in which any type of growth, including an ecologically destructive pattern, is deemed good. A point in case is the East Asian “miracle” during 1970-90.

The focus must shift to truer measures of growth that deduct the spillover harm from carbon-polluting industries and environmental and ecological degradation from the growth process. Ranking countries based on measures that net out this damage will help emphasize the quality of economic growth and encourage more sustainable patterns of investment.

Far-reaching change will occur only with clear accountability being assigned to the sources of the climate conundrum. It is vital to attribute climate change squarely to the relentless emissions of GHGs from using fossil fuels. Equally, it is key to communicate this link to the public and policymakers precisely when climate disasters strike. The public everywhere increasingly identifies climate change as a top global risk, but nowhere does it flag climate change as the highest priority for domestic investment, which must increase in the era of climate change.

Policymakers will need to use the economists’ toolkit to alter the trajectory of climate change. The economics of spillover harm or negative externalities, usually a section in economics textbooks, needs to become a staple of growth economics. Making it so would signal the merits of decarbonizing economies. It would, for example, motivate the use of carbon pricing via a carbon tax levied on the source of  pollution—as South Korea and Singapore have done, or through carbon trading—as the European Union and China are doing.

The economics of spillover harm has wide-ranging implications for development projects. All projects must pass a test of resilience to climate change and be accompanied by legal covenants on mitigation and adaptation. Development programs should avoid the use of fossil fuels, in addition to doing away with subsidies for this pollution source. High-income countries should provide vast climate financing to low-income countries, following the minimal progress achieved on this at COP27. Climate financing would be helped if the world’s multilateral development banks were to strike an alliance on climate action—particularly those with new climate agendas, such as the International Monetary Fund, the World Bank, the Asian Development Bank, and the New Development Bank.

Global dangers from pandemics to geopolitical conflicts to global warming, when taken together, paint a picture of low-probability but high-impact risks (the so-called “black swans”) becoming high-probability and high-impact ones (“gray rhinos”). Accordingly, building resilience needs to go beyond simply coping with disasters to preventing them. Innovative approaches to resilience, such as pooling resources across boundaries and getting financing approvals ahead of disasters, are needed as countries face severe shortages of trained staff and financial resources to cope with risk and resilience challenges.

The need is greater than ever for regional and global cooperation in generating climate finance and scaling up investments in climate mitigation and adaptation, much as exhibited during COVID-19. That vast sums can be quickly mobilized to fix global problems, if public opinion is supportive, was dazzlingly demonstrated in the trillions of dollars—$ 15 trillion, by one estimate, in stimulus spending in 2020 to fight COVID-19. In the wake of the existential challenge from runaway climate change, the same political resolve and public support are called for.

The finance sector can accelerate the transformation to a net-zero built environment

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The finance sector can accelerate the transformation to a net-zero built environment – Here’s how

13 Mar 2023

Real estate is the world’s most valuable asset class representing two-thirds of global wealth. With more than 13% of global GDP related to construction and 12% of employment, its size means it is responsible for an astonishing 40% of global energy-related carbon emissions (14 Gt per year). This is because it makes up over one-third of global final energy use and consumes 40% of raw materials globally. Achieving net-zero carbon emissions in the built environment by 2050 will require investments of USD $1.7 trillion annually and will create half a million more direct jobs.

Real estate assets are a valuable and growing component of institutional investment portfolios. At the same time, ambitious policies and regulations, changing public awareness and radically shifting demand drivers are pushing finance sector stakeholders to focus on sustainability in their portfolios because it affects business in the short, medium and long term. When put together, the finance sector has a unique opportunity to shape demand and drive transformation in the built environment.

Achieving net-zero emissions in the built environment by 2050 is the last stop along an arduous path. The specific targets all actors need to aim for are for all newly constructed buildings to have net-zero operational emissions by 2030 and for all buildings – including existing ones – to have net-zero emissions by 2050. And embodied carbon emissions – emissions from material production and construction processes – must be at least 40-50% lower by 2030 than today and net zero by 2050. Unfortunately, we are not on track.

Halving emissions by 2030 is, therefore, the first stop and must effectively happen today. This is because the lead times in typically built environment projects can easily be 8 to 10 years, so companies planning and designing projects today must already include these targets for 2030.

Achieving this massive transformation at the speed and scale required means that all actors have to share the same vision of halving emissions by 2030 and reaching net zero across the entire life cycle by 2050. They also must deeply and radically collaborate to realize this vision – across governments, the finance sector, businesses along the full value chain, science and civil society. The collaboration needs to focus on the following three critical levers for market transformation (WBCSD and GlobalABC, 2021):

  1. Adopt whole-life carbon (WLC) and life-cycle thinking and concepts across the value chain and the market to align on key indicators, metrics and targets consistently.
  2. Treat carbon like cost: Internalize the WLC emissions costs and reflect them in the price of products and services throughout the value chain, including in governance mechanisms, procurement and taxonomy, from governments and the financial sector.
  3. Foster a positive and reinforcing supply and demand dynamic that incentivizes low-carbon solutions along the value chain. This requires signals from government and finance and, most importantly, collaboration between industry players along the whole value chain.

The role of the finance sector

Finance sector stakeholders strongly influence built environment impacts through loans and investments in built assets and – indirectly – investing in value chain businesses. When mobilizing financial capital, they can set requirements for low-carbon solutions in building projects and across the value chain. Investors, asset managers, banks, advisors and insurers all influence if and how buildings are constructed. They play a crucial role in the very early stages of buildings when decisions significantly impact their future emissions. This includes the energy performance of buildings and setting requirements to reduce emissions from building materials and the construction process.

To understand how the finance sector can exert this influence, let’s look at what holds us back today.

Challenges and opportunities

The transition’s challenges are many and complex. For instance, there is a lack of true collaboration and understanding between the construction, real estate and finance sectors, despite their deep link and reliance. Poor data availability, quality, and limited transparency are holding up measurement, benchmarking, and target-setting processes for net-zero emissions pathways. The built environment and finance sectors are facing a skills shortage in terms of understanding, writing and using reporting and disclosure documents effectively to determine how the results could drive investments. And financial services organizations have traditionally prioritized short-term financial returns over positive, but more difficult to assess, environmental, social and governance (ESG) returns.

However, in all of these, there are opportunities. Stakeholders can find new ways of working together, and legally binding contracts, for example, can help ensure the right incentives, procurement methods and metrics to support net-zero emissions goals for project delivery (see WBCSD’s Decarbonizing construction – Guidance for investors and developers to reduce embodied carbon).

Alignment on the growing number of guides, standards, tools and certifications for assessment and reporting would ensure data availability, quality and transparency (note World Green Building Council’s (WorldGBC) BuildingLife project, the RICS professional statement on whole life carbon, and the Ashrae-International Code Council (ICC) Whole Life Carbon Approach Standard).

Training and upskilling on sustainability-related disclosures and strategies to align with the Paris Agreement would ensure investors and built environment professionals see the value in these documents from both sides. They would become part of the central decision-making process for investments, linking non-financial concerns with financial impact. The Urban Land Institute (ULI) Europe’s C Change project, which is currently addressing transition risk in valuation, is an example of progress in this area. Changing the corporate culture will further the idea that the ultimate goal is to ensure strong returns on investment while creating value beyond shareholders, managing the multifaceted risks of transitioning to net-zero emissions and safeguarding people and the environment.

Understanding these and other challenges and opportunities will help the sector adapt strategies and solutions that will be the key to achieving net-zero emissions.

No-regret actions for finance sector stakeholders

Four specific interventions sit at the core of strategies to reduce the full life-cycle emissions of projects in the built environment: Accountability, Ambition, Action and Advocacy.

  • Finance stakeholders in the built environment can achieve accountability through standardized data measurement and transparent reporting.
  • In setting credible, science-based net-zero emissions targets, they raise ambition.
  • They take action by developing climate transition plans and placing whole-life carbon at the center of decarbonization strategies and decisions.
  • By working with the public sector and organizations like WBCSD and its partners in the BuildingToCOP Coalition and Global Alliance for Buildings and Construction (GlobalABC), they place advocacy for policies and regulations targeting sustainable finance at the heart of efforts to level the playing field for the market.

For asset owners and investors, achieving the transition means setting clear portfolio- and asset-specific targets and timelines. They also must embed critical climate and ESG factors into requests for proposals, investment mandates, manager selection and stewardship engagement with portfolio companies and incorporate the related risks (and opportunities) into valuations and, ultimately, into investment decisions.

For asset managers, the lack of consistent, comparable and decision-useful information on climate impact is still a barrier to better implementation. However, growing demand and regulatory pressures motivate every firm to overcome data challenges through proprietary work or third parties. Standardized frameworks and local/regional taxonomies help the asset management industry with enhanced tools for assessment, benchmarking and reporting. WBCSD’s Net-zero buildings – Where do we stand? report lays the basis for a harmonized whole-life carbon assessment and reporting framework.

Finance providers can acquire a better understanding of the emissions from the products they are financing using adequate data, tools and standards, including the cost of carbon and transition risk considerations. The ability to accurately measure and standardize (whole life) carbon emissions could help them link their financial offerings to carbon targets and potentially provide lower costs for low-carbon projects. For that to happen, they need clear and transparent information to reliably assess the business case and build trust with the market.

For insurance providers, it means developing methodologies to assess and quantify different climate change scenarios and integrating both physical and transition risks into decisions to enter or exit an underwriting.

Lastly, investment advisors and data providers can facilitate top-down learning as they share and spread best practices and become significant players in the standardization and harmonization of data and target-setting (including but not limited to the Carbon Risk Real Estate Monitor (CRREM), Science Based Targets initiative (SBTi) and GRESB).

What’s next? Achieving a breakthrough in buildings

To reduce built environment emissions globally from 14 Gt per year to 7 Gt per year seems to be a daunting task. However, with a clear focus on whole-life carbon emissions alongside cost, the finance sector can help accelerate this transition. There is evidence that we can reduce construction emissions by half today and cost-effectively. And evidence is also emerging that retrofitting building portfolios to net-zero emissions can be achieved competitively.

What needs to happen next is for all stakeholders – finance, national and local governments, and businesses along the value chain – to come together and co-develop roadmaps for a net-zero built environment that identify a clear vision, actions and accountability. Building on the aforementioned built environment market transformation levers, they can drive a united response and decisive action, thereby overcoming the fragmentation of efforts seen so far. The emerging Buildings Breakthrough with national governments committed to transforming their built environment will provide a platform to join efforts and collaborate to achieve a future in which the built environment turns from a problem into a solution to tackle climate change.

We cannot wait – because for the built environment, 2030 is today.

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