The Role of Sub-state and Non-state Actors in International Climate Processes: Financial Institutions

The trillions of dollars needed to secure the sustainable, climate-compatible pathway outlined in the 2015 Paris Agreement have focused attention on private finance and investment.

Research paper Updated 6 October 2020 Published 21 December 2018
Photo by João Barbosa, ‘The need to keep growing’, 2018.

Photo by João Barbosa, ‘The need to keep growing’, 2018.

This is one of four background papers feeding into a synthesis paper entitled The Role of Sub-state and Non-state Actors in International Climate Processes.

Summary

  • The trillions of dollars needed to secure the sustainable, climate-compatible pathway outlined in the 2015 Paris Agreement have focused attention on private finance and investment, and on the role of the financial sector as a potentially powerful non-state actor in the international climate debate.
  • Leading individual financial institutions reacted to the Paris Agreement by framing it in terms of what it would mean for markets – i.e. risks and opportunities – and by underlining the importance of national implementation of climate change commitments.
  • Key recent developments signal that the financial sector actively supports Paris-compatible government action on climate change, as well as company-level action to understand the physical and ‘transition’ risks and opportunities associated with climate change and policy responses. Financial sector engagement is taking place through well-organized and well-supported international initiatives and platforms. A critical part of this process entails robust activity by financial institutions to embed climate change and broader sustainability factors into strategies and operations.
  • At country level, attention to implementation of Nationally Determined Contributions (NDCs) and associated sector-level policy development has been largely separate from the broader ‘sustainable finance’ dynamic. National-level action has not benefited from the same level of organized financial sector involvement evident in international action. One of the reasons for this is that, with some notable exceptions, international financial initiatives lack the capacity and resources to participate in the granular detail of national policy processes. Policymakers in turn often lack the internal capacity to consult or engage with the financial sector domestically.
  • This paper includes some thoughts on further international and national climate actions. Ensuring that messages from successful international financial sector initiatives are heard in regional and non-climate forums offers one avenue for building a stronger foundation for greater climate ambition. Building the resource base for stronger national climate policy engagement, as a counter-voice to incumbent interests and to ensure that the quality of policy is ‘investment grade’, is another. This will be critical to the delivery of policy outcomes. Other key elements include the need to pool knowledge across relevant parts of the finance sector, build alliances, and shift action towards joint problem-solving with policymakers. A ‘Talanoa 2.020’-type initiative offers one potentially promising approach to advancing dialogue in this respect.