Green taxonomies need to embed forward-looking, decarbonisation pathways to help catalyse the transition to a net-zero carbon economy, a webinar heard.
The growing number of national and regional taxonomies tend to focus on identifying green or sustainable activities, but are struggling to cater for the transition and help encourage a change in behaviour to green or sustainable activities.
“Many taxonomies don’t have decarbonisation pathways at the moment – they tend to be backwards-looking or point-in-time-looking, rather than forward-looking,” Rachel Hemingway, head of transition programmes at the Climate Bonds Initiative, told a webinar on transition finance hosted by the IFC and Environmental Finance.
“So, this is one of the challenges: how to embed forward-looking decarbonisation pathways that set out what a sector’s emissions thresholds should be by 2030, 2040 and 2050.”
Amundi’s head of climate, Aaron McDougall, agreed that making taxonomies forward-looking is a challenge.
Both McDougall and Hemingway agreed that achieving greater harmonisation and interoperability between taxonomies is a crucial challenge.
Hemingway added that CBI is working with UNEPFI and PRI on a project that aims “to develop a principles framework for global taxonomy interoperability”.
Representatives from two African banks spoke about the difficulties of financing the transition.
Msizi Khoza, head of ESG at Absa CIB, talked about a “mismatch” between the pricing of green liabilities and green assets: “If we go out to issue a green bond there’s no greenium or discounts there. But what makes it worse is that on the asset side, like renewables, which is crucial, there is margin compression.
“It’s a bit like banks are being squeezed on both sides. In the equation, something is not working, especially in the context of how much capital is needed to flow to accelerate the transition.”
He talked of “a pressing and urgent need” to unlock cheaper sources of capital and the need to “think outside the box”, including through blended finance.
Bronwyn Price, strategy and sustainability executive at Nedbank, said there are “no easy pathways to abatement in South Africa”.
“Energy security is a huge issue for us,” she said. “We have had lots of power outages that escalated last year significantly.
“We need to transition, and we have to move towards a future that ensures lives and livelihoods are protected [in a way that is] just and equitable.”
She said there needs to be a greater understanding that the “transition creates jobs and opportunities”.
“We have to lean-in to ensure our country is positioned for both, otherwise you are going to be left behind.”
Listen again to the webinar: Charting transition finance: mapping out the winning rules here: Charting transition finance: mapping out the winning rules :: Environmental Finance (environmental-finance.com)