Anyone not living in Europe should not immediately switch off now! This is a report highly worth a scan for the light it casts on how we should be approaching financing the Paris agreement. Indeed, the thing the report perhaps makes most clear is how much we need just such an “HLEG” on Paris – and it provides an agenda for such a group to tackle. Almost all of the shortcomings the report identifies in the European finance system apply equally to global issues of sustainability, of which Paris is a critical element.
We’ll just pick out a few examples of how the report relates to Paris and the NDCs.
First, it demonstrates that it is possible to take a holistic view of a complex situation and provide a co-ordinated response. That simply isn’t happening in climate finance at the moment. As the report says, speaking of the state of the financial system in Europe, “There is nothing immutable about this situation. The state of today’s financial system is the result of an evolution over decades of economic development and technological change: its misalignment is not by nature but a consequence of the environment in which it has evolved.” Exactly the same is true of the global financial architecture which is currently failing to deliver for Paris, and the same “comprehensive approach” that the HLEG calls for in reforming the European system could be established globally. The architecture was made by us, and it can be remade by us.
Second, a key recommendation of the report is that a “sustainable finance taxonomy” for Europe is created by 2020. “If Europe is to mobilise capital at scale for sustainable development,” the HLEG says, “it needs a technically robust classification system to establish market clarity on what is ‘green’ or ‘sustainable’. Introducing a sustainability taxonomy, starting with climate-mitigation around mid-2018, will enhance market efficiency and help to channel capital flows towards assets that contribute to sustainable development.” We have been calling since before Paris for just such a taxonomy for the NDCs, for exactly the reasons the HLEG points out about channelling capital flows, plus a range of other benefits, which in the case of Paris would include accurate reporting and increased ambition in NDC revisions. Perhaps the UNFCCC and the DFIs could piggy-back on the taxonomy the EU creates, since the early categories it addresses will be climate mitigation and adaptation.
Third, the report calls for an EU ‘observatory’ on sustainable finance, and a new enabling capability focussed on promoting sustainable infrastructure. We have been calling for something similar in climate finance, what we have been calling a ‘finance functionality’ to be developed alongside the ‘negotiation and science functionality’ of the UNFCCC. This would facilitate the promotion of deal flow, TA, preparedness and knowledge sharing around NDC finance. The report again provides a ‘menu’.
Time for a Paris HLEG!