The window for meaningful action on climate change is closing. According to the 6th Synthesis Report of the Intergovernmental Panel on Climate Change, all global pathways modelled to limit warming to 1.5°C (with more than a 50% likelihood) with no or minimal overshoot, as well as those aiming to limit warming to 2°C (with more than a 67% likelihood), require rapid, deep, and, in most cases, immediate reductions in greenhouse gas emissions across all sectors within this decade.
This week key global leaders are meeting in Baku, Azerbaijan, for the 29th United Nations Climate Change Conference (COP29) and based on Axel Weber’s keynote speech during the Sustainability Standards Conference 2024, this blog post discusses the role of markets and financing in mitigating climate change.
Establishing a global carbon price
Creating a global carbon market with accurate pricing mechanisms is essential. The current price of carbon does not reflect its true environmental cost, covering only a fraction of the impact. Implementing a global carbon price, along with cross-border adjustment taxes, would not only reveal the real cost of carbon emissions but also generate funds to support emerging markets in their energy transitions. This financial flow is vital for assisting countries that face the most significant challenges yet have the greatest potential for reducing global emissions.
We need a diverse, robust, and fast-moving agenda for sustainability. Transforming corporate practices in mature economies is essential, but even more critical is supporting emerging markets in their green transitions. Countries across Asia, Africa, and other developing regions urgently need assistance to shift from coal and other fossil fuels to sustainable energy sources.
This transformation goes beyond adopting new technologies, it requires substantial financial investments and strong commitments from developed nations to facilitate technology transfer and capacity building. The higher growth rates of emerging markets present unique opportunities—and challenges—for sustainability. Targeted efforts to reduce carbon emissions in these regions can deliver the most significant global impact. To achieve this, innovative and effective policy interventions are indispensable for driving a more sustainable future.
Who leads the global climate effort?
The absence of a unified global authority dedicated to climate action leaves a significant leadership void. The recent changes in US leadership have further heightened uncertainty around the possibility of a cohesive and decisive global climate policy framework. Given the urgency of the climate crisis, creating a new global sustainability authority from scratch may not be feasible.
During the Sustainability Standards Conference 2024, Axel Weber proposed in his speech that existing multilateral development finance institutions like the International Monetary Fund (IMF) and the World Bank could step up to fill this gap by expanding their mandates to include environmental and sustainability priorities. By adopting greener agendas and taking on stronger coordinating roles in global climate initiatives, these established organizations could be able to drive meaningful action.
Supplementing the current functions of these organizations with a strong focus on sustainability could be an at-hand solution to implement a global sustainable leadership. These incremental roles require governments to allocate additional funds for a greener IMF and World Bank dedicated to a sustainable future while maintaining their essential economic objectives.
Bridging the financing and technology gap
The challenge today lies not in technological capability but in mobilizing the necessary financial resources. Developed nations have made significant progress in reducing carbon footprints through innovation and energy efficiency. However, many emerging markets lack the financial capacity to independently implement these advancements. Bridging this gap requires substantial financial support from wealthier nations to ensure an inclusive and effective global energy transition.
The crucial role of unified sustainability disclosures
Transparent and standardized sustainability reporting is essential for catalyzing meaningful policy actions and informed decision-making. Detailed, comparable, transparent, and mandatory sustainability disclosures are vital for driving investment and divestment choices that align with global climate goals. Recognizing this, SAFE’s ESG-UPTAKE project seeks to enhance the ability of EU Member States' national competent authorities to monitor and address ESG risks in the financial sector.
A single, unified global standard is imperative to prevent inconsistencies that could undermine these efforts. We must avoid the fragmented landscape seen in financial reporting, such as the divergence between International Financial Reporting Standards and US Generally Accepted Accounting Principles—. Climate change is a single, planetary challenge, and it demands a cohesive global response. A unified standard for sustainability disclosures can strengthen accountability, foster collaboration, and drive more impactful climate action worldwide.
A call for collective action
The notion of a smooth transition is being disrupted by a rapidly warming world and increasingly frequent extreme weather events. Our shared experiences in academia and the financial sector highlight the urgency of addressing climate change through coordinated global action. Enhancing transparency via standardized sustainability disclosures and mobilizing financial resources to support emerging economies are essential steps toward combating this global crisis. Achieving substantial progress demands a collective commitment from governments, corporations, financial institutions, and international organizations.
Leveraging the leadership and expertise of established entities like the IMF and the World Bank will be crucial. By integrating sustainability into their core agendas, these institutions can play a pivotal role in driving the urgent changes needed for a more sustainable future.
Sara Fadavi is Financial Policy Analyst at the SAFE Policy Center.
Tatiana Farina is Head of the SAFE Policy Center.
Loriana Pelizzon is Deputy Scientific Director and Department Director of “Financial Markets”.
Blog entries represent the authors‘ personal opinion and do not necessarily reflect the views of the Leibniz Institute for Financial Research SAFE or its staff.
