Record-breaking heatwaves, devastating wildfires, and catastrophic floods are becoming the norm rather than the exception as the world warms. 2023 was one of the warmest years on record according to the World Meteorological Organization and 2024 is likely to be even hotter.
The relentless burning of fossil fuels and the degradation of ecosystems are the root causes of this dangerous warming. To speed up the switch from coal, oil and gas to cleaner energies, and protect and restore nature, countries must submit ambitious and investible national climate plans which are called Nationally Determined Contributions (NDC) under the Paris Agreement.
NDCs are the cornerstone of global climate efforts. They represent each country’s commitment to reduce greenhouse gas emissions and adapt to the impacts of climate. They should be renewed every five years, represent a progression beyond the previous plan, and reflect the highest possible ambition of each country. New NDCs for 2035 are due by next year.
A new report from the We Mean Business Coalition underlines how ambitious NDCs can drive accelerated private sector investment in the transition to a clean and nature-positive economy.
The report calls on countries and businesses to work together to propose their NDCs and plans, which should reduce emissions in line with science. More importantly they should offer enough clarity for companies to invest confidently. To this end, the plans should include targets to phase out unabated fossil fuels and replace with more renewable energy and energy efficiency, and halt and reverse deforestation.
The paper also emphasizes the importance of translating NDCs into concrete policy and actions and of increased government-business collaboration.
Adopting such an approach is essential because today private investment is woefully inadequate to keep the global temperature rise below 1.5°C as pledged under the Paris Agreement. The United Nations Environment Programme shows that the current NDCs would result in a 2.5C to 2.9C increase by the end of the century. Scientists are warning that higher levels of warming will be dangerous and very costly.
Current NDCs are not just falling short on ambition, but also on the details of how governments plan to drive investment in clean technologies and actively replace the fossil fuel system and infrastructure. Long-term certitude is fundamental to business. Companies need five-to-ten-year coherent government plans showing politicians are serious about accelerating the transition from fossil to clean to give them the confidence to scale investments in this direction.
And the reason business needs thought-through, coherent policy planning is because pollution and global warming has the ability to significantly disturb the operating environment for all businesses, whether large or small. From trade disruptions, damaging weather events and threats to resources and raw materials, to financial risks from rising insurance costs, volatile energy pricing, changing cost of land, labor and resources – there is much that good policy can prepare for.
The transition to a clean economy is also a massive opportunity. The shift to cleaner business models will offer a competitive advantage positioning companies at the forefront of technologies that are proving cheaper in the long run. Renewables, particularly solar and wind, are increasingly more cost-effective than fossil fuels. Reports from BloombergNEF show that solar and wind now represent 91% of new power capacity additions in 2023, indicating a significant cost advantage. The IEA estimates that around USD 2.8 trillion was invested in energy in 2023, of which more than USD 1.7 trillion went to clean energy. There is also growing evidence that companies that prioritize renewable energy are often viewed more favorably by consumers and investors.
A recent survey shows that investors believe clean energy investments will outperform most other sectors and earn investors money in the short and long term. They recognize that climate risks are significant business risks that, if ignored, could hurt the financial performance of companies and investment portfolios. They also believe that retail investors expect clean energy to outperform every sector except AI over the next 10 years.
Many businesses are already focused on accelerating change. More than 260 companies, collectively generating over $1.6 trillion in revenue, are working to phase out unabated fossil fuels under the Fossil to Clean campaign. And thousands of other companies are setting science-based targets, developing climate transition plans and investing in net-zero solutions.
Credible NDCs need to incorporate tangible ambition to accelerate clean energy and address deforestation, they must provide relevant plans, policies and incentives, and be able to work in lockstep with implementing departments and bodies. With these in place, countries can attract private capital and knowledge, and in doing so, create the ambition loop that can keep 1.5C in sight.
