The financial sector faces a challenge: institutions that want to decarbonize their portfolios can’t always do so at scale while the world continues to rely on carbon-intensive heavy industry. In turn, industrial corporations are reticent to make changes to their operating model for fear of jeopardizing vital sources of investment and credit.
How should a bank with net-zero ambitions approach, say, a lucrative refinancing for a high-emitting steel company? Does the company in question have a decarbonization plan? If so, is it sufficient? Against what standard?
Answering these questions and enabling ambition is difficult for investor and client alike. The global financial sector could more easily meet climate targets with clients that follow their own industry-wide pathways toward net-zero emissions. Likewise, industrial corporations would be more empowered to establish these pathways with clear frameworks in place. It is a conundrum that can best be addressed — and acted on — collectively.
Fortunately, initiatives are underway to enable exactly that collective action.
RMI launched the Center for Climate-Aligned Finance in July 2020 to empower investors and clients together to solve the decarbonization puzzle. The Center’s change model is based in large part on RMI’s success with the Poseidon Principles, a framework that enabled financial institutions and their clients in the maritime shipping sector to decarbonize together.
Replicating the model of the Poseidon Principles is a daunting task. Seven major industries — aluminum, cement, chemicals, iron and steel, aviation, shipping, and heavy road transport — account for 30 percent of total carbon emissions. Today, the Center will bring the work of Poseidon to the next level by partnering with a new initiative that will accelerate industrial decarbonization across sectors: the Mission Possible Partnership (MPP).
Introducing the Mission Possible Partnership
MPP is a global coalition looking to accelerate the decarbonization of heavy industry and transport at speed and scale. The coalition presently convenes close to 400 high-ambition companies and comprises leading organizations that rank among the world’s most influential in the realms of corporate leadership, industrial decarbonization, finance, and policy development.
The Partnership, which launched today, is led by four core partners: the Energy Transitions Commission, Rocky Mountain Institute, the We Mean Business coalition, and the World Economic Forum. The International Energy Agency is a strategic partner for government engagement and modeling. Supporting partners include the Center for Climate-Aligned Finance, Ceres, the Climate Champions of the United Nations Framework Convention on Climate Change, the Global Maritime Forum, the United Nations Environment Programme Finance Initiative, SYSTEMIQ, and the World Business Council for Sustainable Development.
The Partnership builds on nascent efforts to drive sectoral decarbonization, bringing together a range of initiatives that had emerged in a fragmented way in each sector and helping them to work together. By supercharging the effort over the next 10 years, MPP will accelerate the decarbonization of some of the world’s highest-emitting and hardest-to-abate industries.
MPP will orchestrate high-ambition disruption through net-zero industry platforms for the seven aforementioned sectors: aluminum, cement, chemicals, iron and steel, aviation, shipping, and heavy road transport. In addition to accounting for 30 percent of global carbon emissions, these sectors, as some of the world’s largest consumers of energy, also hold the key to driving a broader transformation of our energy system.
Across all seven sectors, MPP will bring together progressive industry leaders and their suppliers, customers, and capital providers, along with the relevant governments. With this level of collaboration and engagement, the Partnership will be able to secure mutually reinforcing commitments to action from all stakeholders. MPP’s actions in each sector will follow a variation of its four-step process:
- Convene a critical mass of ambitious industry leaders and agree on a shared vision for sector decarbonization.
- Leverage existing analysis to develop a sector-specific, viable, high-ambition roadmap to net-zero emissions by 2050 that will be a collaborative exercise with the industry and other stakeholders.
- Develop commitments to action that tie concrete actions in line with the net-zero roadmap milestones, therefore embedding the roadmap in corporate strategies.
- Build the market infrastructure needed to track and support ongoing implementation of these ambitious commitments via metrics, standards, and toolkits, as well as rigorous implementation of best-practice public disclosure.
How MPP Serves the Financial Sector
The Center will play an integral role in supporting the financial sector’s engagement in MPP. It will identify opportunities for climate-aligned finance across each sector, connect financial champions to the alliance, and guide financial institutions into climate-alignment agreements.
In 2021, MPP will fast-track the delivery of two or three of these net-zero sector platforms—likely within the shipping, aviation, and steel sectors—for unveiling at the United Nations climate summit in November 2021 (COP26). For each of these sectors, the MPP team will facilitate an industry-backed net-zero roadmap to 2050 with five-year milestones, as well as public commitments from the key stakeholders required to implement that roadmap.
These roadmaps will provide confidence for both investors and corporations, modeling clarity and transparency while also creating an opportunity for investors to weigh in on the roadmap creation process. For instance, a climate-aligned finance agreement for the steel sector would provide financiers of global steel companies with a clear indication of how the industry is looking to reduce its emissions and by when. This knowledge would allow investors to proactively plan financing solutions to turn those goals into reality. Lenders would be able to measure how closely aligned their steel portfolios are to their own pathways to net-zero emissions, by using frameworks similar to the one in the Poseidon Principles Annual Disclosure Report 2020.
The Center is already discussing working groups for sectors—such as steel—with a number of global banks. The Center’s work within MPP will create a framework for financial institutions and their clients to benefit from the opportunities presented by industrial decarbonization. Financial institutions that join these working groups can actively work with their clients to shape a decarbonization strategy, helping inform the industry-wide pathways that MPP will eventually facilitate. This involvement will allow financial institutions to play a prominent role in defining climate alignment in sectors where they are already prominent and/or looking to grow.
At the heart of the change model for both MPP and the Center for Climate-Aligned Finance is the conviction that collective action can enable the transformation of the global economy. It is fitting that this new partnership combines and focuses the efforts of 12 partner organizations, providing a space where policymakers can join with leading investors and corporations to achieve together what would be impossible alone.
Featured image courtesy GM
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