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Climate debate evolution

April 21, 2021

Rina Cerrato


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The Beginning of the Climate Debate

The United Nations Framework Convention on Climate Change (UNFCCC) was adopted in 1992 and entered into force in March 1994. It has been ratified by 197 countries. It is the first global framework for tackling human interference in climate systems. In fact, the ultimate goal of the convention is to stabilize the greenhouse gases emitted by human activity that interfere with the climate system.

Graphic Greenhouse Gases covered by the convention are generated by human activities, or anthropogenic sources, are:

Carbon Dioxide CO2
Methane CH4
Nitrous Oxide N2O
Hydrofluorocarbons (HFCs) and Hydrochlorofluorocarbon (HCFCs)
Fluorinated ethers (HFEs)
Chlorofluorocarbons (CFCs)
Perfluorinated compounds (PFCs)

The UNFCCC was a new framework that created mechanisms that directed funds to climate change activities for adaptation and mitigation. It created the first flows of climate finance from developed countries to developing countries, and it not only involved governments, it brought the financial incentive for private sector participation. Since coming into force, under UNFCCC there have been two agreements that have paved the way to where we are today in climate finance.

The legal text to the convention can be found here.

The Kyoto Protocol

The Kyoto Protocol was adopted in December 1997, and following a complex ratification process, came into force in February 2005. The Kyoto Protocol placed responsibility of the larger share of emissions to the developed countries and sets binding emission reduction targets for these parties. To facilitate action, the Kyoto Protocol created flexible financial mechanisms to help parties meet their compliance obligations in a cost-effective way:

  1. International Emissions Trading
  2. Clean Development Mechanisms
  3. Joint Implementation

All three mechanisms facilitated the flow of capital from developed countries to developing countries through the purchase and trade of carbon offsets. Carbon offsets are created when emissions are reduced or displaced at the source. Each tonne of emissions reduced would result in a tradeable credit that can be purchased and sold.

The Paris Agreement

The Paris Agreement is the latest agreement under the UNFCCC that reinvigorates and intensifies the global response to climate change. The agreement commits parties to the ambitious goal to limit a global temperature rise of 1.5 to 2 degrees Celsius above pre-industrial levels by 2050. The Paris Agreement came into force in November 2016.

“To reach these ambitious goals, appropriate mobilization and provision of financial resources, a new technology framework and enhanced capacity-building is to be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives. The Agreement also provides for an enhanced transparency framework for action and support.”

Where we are and where we are going

A successful outcome of the UNFCCC has been the adoption of carbon pricing – either in the form of a carbon tax or a cap-and-trade system. This has evolved into dynamic markets with huge investment opportunities driving the transition to low-carbon economies. Carbon markets, as a financial market can distribute capital efficiently to low-carbon solutions. Policies have driving emission reductions and now the next step is to carry the effort beyond reductions into carbon avoidance through changes in technology. Financing these solutions, supported by policy, will make them available for widespread adoption and behavioural changes. In return, we will be able to balance the carbon budget and reach the ambitious goal set under the Paris Agreement and net-zero.

We are seeing the opportunity for the financial sector to play a role in the transition to the low-carbon economy. As the climate change discussion becomes more mainstream, so is the demand from investors and stakeholders requiring companies to be transparent on climate action through financial climate disclosure, climate risk, and impact assessment. No longer is climate change action being defined by country policies, there are now voluntary schemes and frameworks measuring and disclosing a company’s commitment to addressing climate change.

The ability for companies to adapt and respond to the growing demand for climate action will be an important factor to a company’s resilience in the transition to the low-carbon economy driven by the Paris Agreement.

The Task Force on Climate-Related Financial Disclosures

“Changes in climate policies, new technologies and growing physical risks will prompt assessments of the values of virtually every financial asset”. December 2019, Mark Carney, Governor Bank of England”

The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB) to develop recommendations for effective climate-related disclosures. A first of its kind, TCFD develops voluntary, consistent climate-related financial risk disclosures recommendations for use by companies in providing information for investors, lenders, insurers, and other stakeholders.

TCFD has 32 international members and is led by Michael Bloomberg. A full TCFD disclosure overview can be found here.

United Nations Environment Programme Finance Initiative (UNEP FI)

UNEP FI is a partnership between UNEP and the global financial sector to mobilize finance for sustainable development. Through this partnership, UNEP FI has co-created financial sector frameworks for standard-setting for private finance’s contributions to the 2030 Agenda for Sustainable Development and the Paris Agreements, namely:

Principles for Responsible Banking (PRB) [link:]

Principles for Sustainable Insurance (PSI) [link:]

Principles for Responsible Investment (PRI) [link:]

UNEP FI carried out a pilot project to help implement the TCFD recommendations.

Principles For Responsible Investment (PRI)

The UN Principles for Responsible Investment works to understand the investment implications of environment, social and governance (ESG) factors. Climate change is a big part of ESG, and PRI helps investors understand low-carbon economy transitions from an investment portfolio lens. PRI takes the TCFD recommendations as part of their reporting framework. iClima Earth is a signatory of the PRI.

Learn More

For more information on voluntary climate change disclosure activities and other helpful information visit:

The Transition Pathway Initiative:

Carbon Disclosure Project:

Climate Policy Initiative:

An overview of carbon markets: