Scaling up private sector action on climate change
Christina Hood, Compass Climate, and Andrew Prag snd Luke Pritchard, We Mean Business Coalition
This paper was authored by Christina Hood (Compass Climate), Andrew Prag (WMBC) and Luke Pritchard (WMBC). The work was supported by a grant from the Hightide Foundation.
The private sector is a key actor in the pursuit of global climate goals. To achieve the climate targets defined in the Paris Agreement, an estimated $8 trillion, or more, in annual climate finance must be mobilized by 2030 — a six-fold increase from the levels deployed in 2022. To fill this gap, private capital must play a pivotal role, potentially delivering at least $2.61 trillion per year.
Many companies have stepped up, but much more action is needed from the private sector. Over half of the world’s top 2,000 publicly listed companies, which have a combined annual revenue exceeding $27 trillion, have committed to net-zero targets. While the increased uptake of climate targets is a promising sign, just an estimated 18% of these companies are currently “on-track” to reach net-zero by 2050. And despite companies signaling clear climate-action commitments, growth in corporate climate finance remains lackluster.
Since 2018, the number of companies committed to targets under the Science-based Targets Initiative (SBTI) has surged by more than 500%, yet annual corporate climate finance payments in this same period have increased by just 5%, from $183 billion to $192 billion per year. Corporate climate investment represents the slowest-growing segment within the private climate finance sphere, trailing significantly behind the threefold increase in spending from commercial financial institutions during the same period.
One prerequisite for investment confidence is clarity on the rules that will apply to target setting, tracking and achievement. With minimal international or domestic regulation of corporate climate targets in much of the world, the non-governmental community has created voluntary systems and governance bodies to guide companies on measuring emissions, establishing targets, and making claims. This architecture, which encompasses SBTI for target validation and GHG Protocol guidance for emissions accounting, is widely used by companies worldwide. It is becoming a benchmark for emerging disclosure regulations. These systems have been developed in parallel with and largely independent of international processes established under the Paris Agreement to help countries implement and track progress toward their Nationally Determined Contributions (NDC). Understanding how these voluntary corporate inventory accounting systems and target accounting frameworks are similar to the national architecture, and how they differ, can help inform more aligned and robust systems going forward.
This paper explores how emissions accounting principles and processes developed under the Paris Agreement can provide lessons for further development of the greenhouse gas accounting and voluntary target claims systems used by companies. It poses key questions that will need to be resolved to improve accountability, provide certainty on how progress and achievement of targets will be accounted for,, and facilitate broader private sector investment, including through market-based accounting approaches.