This week’s United Nations Climate Change Conference (COP27) in Egypt will be the first such summit held on African soil since 2016. That makes the gathering an ideal setting for world leaders to deliver on their earlier promises and announce a comprehensive plan to mitigate the worst effects of climate change on countries in the Global South.
Providing developing countries with the financing they need to achieve net-zero emissions is crucial to realising climate justice. Ensuring inclusive and sustainable growth will require investing trillions of dollars in clean energy and green infrastructure. But only through investment on this scale can we meet the 2015 Paris climate agreement’s central goal of limiting global warming to well below 2C, relative to pre-industrial levels.
Fortunately, since the Paris agreement was signed, institutional investors have become increasingly aware that climate change could significantly affect companies’ bottom lines and have incorporated ESG (environmental, social, and governance) and sustainability factors into their risk analyses and valuations.
But as important and commendable as these measures are, they are not enough. Developing global standards for climate-risk disclosure marks the next stage in the fight against climate change. To this end, we must merge today’s alphabet soup of differing ESG and sustainability guidelines into a single mandatory framework. The International Sustainability Standards Board (ISSB) and the European Union’s proposed Sustainability Reporting Standards (ESRS), which aim to create clear rules and criteria for ESG-related disclosures, are both steps in the right direction.
Mandatory standards such as the ISSB and the ESRS play a simple but powerful role by creating a yardstick for measuring the climate impact of corporate activity. By providing companies around the world with shared tools to report on their greenhouse-gas emissions and measure climate-related risks, they level the playing field for investors and financial institutions, helping them to make better-informed decisions.
While there is enough wealth in the world to solve every development challenge facing low- and middle-income countries, doing so would require vibrant and liquid local capital markets. To this end, we must develop global standards that would enable unimpeded capital flows from the Global North to the Global South.
Developing countries, for their part, recognise the importance and potential benefits of globally accepted disclosure standards. In September, a group of African finance, economy, and environment ministers issued a joint statement welcoming the work of the ISSB. The document urges African countries to work with the organisation to introduce a “global baseline of sustainability disclosures,” adding that “early adoption by African jurisdictions and companies has the potential to attract more investment and to boost private sector development in Africa.”
Any global sustainability framework must incorporate countries like India, China, Brazil, Nigeria, Bangladesh, and Kenya. By adopting such standards, companies in climate-vulnerable countries could become more attractive to global investors.
But this is easier said than done. For developing countries to impose mandatory sustainability standards, they would first need to train regulators, board members, corporate executives, accountants, auditors, financial analysts, accounting firms, and investors in using these frameworks. They would also need to modernise their information-technology systems and enact policies to accommodate these changes. The international community must support and advise climate-vulnerable countries as they build these crucial capacities.
But time is of the essence. Given the urgent need to adopt global mandatory sustainability standards, the international community needs to co-ordinate policies to leverage existing resources and programmes. Multilateral development organisations such as the United Nations, the World Bank, the International Monetary Fund, and the OECD are essential to this process, as are professional associations, industry groups, academic institutions, and foundations. Likewise, new media and digital platforms could enable standard-setters to reach millions of potential users.
From the signing of the Paris agreement at COP21 to the launch of the ISSB at COP26 last year in Glasgow, the world has made significant progress in translating climate goals into concrete actions. Ahead of COP27, we must shift our focus to the Global South and ensure that developing countries secure the investments they need to reach the net-zero target without sacrificing future growth.
When world leaders gather in Egypt’s Sharm El-Sheikh tomorrow, they must acknowledge that climate change does not concern only Europe, the United States, and China. The climate battle will be won or lost in countries like Colombia, Nigeria, and India. The conference offers the world’s richest countries the chance to put their money where their mouth is. — Project Syndicate
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