The Paris Agreement, adopted at the 21st Conference of the Parties (COP 21) in December 2015, stands as a landmark international accord aimed at addressing the urgent global challenge of climate change.
Signed by 196 countries, it represents a collective commitment to limit the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels, while pursuinge a more ambitious target of limiting the increase to 1.5 degrees Celsius.
The agreement emphasizes both adaptation and mitigation strategies to build resilience against climate change impacts and reduce greenhouse gas emissions. A key feature is its bottom-up approach, allowing each participating country to set its own nationally determined contributions (NDCs) and regularly report on progress.
This international framework has profound implications for financial institutions, highlighting their pivotal role in achieving climate-related objectives. The agreement calls for financial institutions to contribute to the transition to a low-carbon economy by redirecting investments toward sustainable and climate-resilient projects. This requires integrating environmental, social, and governance (ESG) criteria into investment strategies, risk assessments, and decision-making processes.
The impact of the Paris Agreement on financial institutions extends beyond risk mitigation to opportunities for innovation and growth in green finance. With governments and regulatory bodies increasingly focused on climate-related financial disclosure, financial institutions face mounting pressure to enhance transparency and accountability regarding their exposure to climate risks and the alignment of their portfolios with climate goals. This shift towards sustainable finance represents a transformative journey for the financial industry, aligning it with global efforts to build a resilient and environmentally conscious future.
Aligning with the Paris Agreement brings tangible benefits to financial institutions, including:
As a leading consultant company in sustainability and climate risk management, we offer a tailored approach to assist financial institutions in effectively aligning with the Paris Agreement. Our focus is on:
Financial institutions benefit from our expertis in developing custom methodologies, conducting portfolio evaluations, and setting ambitious climate targets. Additionally, through years of actively supporting institutions worldwide, we have gained valuable expert insights. By choosing RINA, financial institutions partner with an experienced and established leader in the field of sustainability consulting. We are dedicated to driving meaningful change and ensuring a sustainable and resilient future in line with the Paris Agreement.
Evaluating alignment with the Paris Agreement proves challenging for financial institutions on multiple fronts.
Accurate data on carbon intensity and climate risks can be difficult to obtain due to issues with data quality and availability. Moreover, assessing transition risks associated with the shift a low-carbon economy is complex due to industry-specific factors.
Global policy uncertainties introduce complexity, with evolving regulations influencing investment viability. The mismatch between the long-term goals of the Paris Agreement and shorter investment timelines presents additional challenges. Limited historical data on climate-related risks further complicates the assessment process. Collaborative efforts are needed to establish standards, improve data transparency, and foster a shared understanding of the implications of aligning with the Paris Agreement.