Improving transparency on climate action costs by developing countries can support private climate finance, investors urge in aftermath of COP29
26 November 2024
The investor-led Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) project, supported by the world’s major climate investor networks, has published a landmark new assessment of 70 high-, middle- and low-income countries’ climate policies and ambitions assessed against the ASCOR framework.
Result highlights
- No country has a 2030 NDC target ambitious enough to align with their 1.5°C benchmark, but two countries - Costa Rica and Angola - come very close.
- Only 16% of countries have a transparent and credible commitment to phase out fossil fuel subsidies.
- Only one third of developing countries have been transparent about the costs of essential climate mitigation and adaptation, which may constrain public and private finance.
- Most (80%) assessed countries have a net zero target but only a handful of leading countries are targeting net zero earlier than 2050: Barbados and Norway in 2030; Finland in 2035; and Austria, Denmark, Germany and Sweden in 2045 or earlier.
- 14 of 70 countries have 2030 Nationally Determined Contribution (NDC) targets that are aligned with 1.5°C when using a ‘fair share’ approach, which allocates the 2030 carbon budget based on equity principles.
- Targeted transition finance could help emerging market and developing economies to harness low-carbon technologies and establish climate policies while they continue to focus on development priorities.
- Encouragingly 57% of countries (40) assessed have established a legal framework for national climate policy, through a climate framework law.
- Most countries (76%) have published a National Adaptation Plan, the foundation for managing physical risk.
The authors also point out that “developed countries are making insufficient contributions to international climate finance”. 81% of wealthy countries are failing to contribute to their proportional share of the US$100 billion international climate finance goal, or to set future finance targets that would meet such a share. Only France and Germany have past contributions as well as forward-looking commitments that meet their proportional share of the original $100 billion goal. Future ASCOR analysis will reflect the outcomes of COP29 where this finance goal from developed countries was updated to $300 billion.
The report is published following the agreement of a ‘new collective quantified goal’ at the COP29 United Nations climate change summit in Baku, Azerbaijan. The NCQG agreement called on “all actors to work together to enable the scaling up of financing to developing country Parties for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035”.
For this year’s ASCOR report, the countries assessed represent 85% of global greenhouse gas emissions, 90% of global GDP and 100% of three main sovereign bond market indices. The significant increase from the initial 25 to 70 countries makes the ASCOR tool a game-changer for investors seeking to integrate climate considerations into their decision-making on sovereign bond investments.
In ‘State of Transition in Sovereigns 2024: Tracking national climate action for investors’ the authors confirm that no country has a “historical emissions trend or 2030 target that aligns 1.5°C warming.” Although most countries have reduced their emissions since 2019 and have set medium and long-term emissions reduction targets, few of these are ambitious enough. The report also states that countries “perform poorly on commitments to phase out fossil fuel subsidies and production, making finance flows inconsistent with a 1.5°C future.” Hong Kong, Peru and Uruguay are the only countries that do not currently subsidise fossil fuels.
The analysis found that high-income countries are more consistently reducing their emissions, but low-income countries have lower per capita emissions and more often have trends aligned with their 2030 fair share benchmarks. Across regions, the European Union performs best, while countries in the Middle East and North Africa perform worst, partially explained by the region’s economic dependence on fossil fuel rents.
The independent analysis for the ASCOR tool was provided by the TPI Centre at the London School of Economics and Political Science. The tool aims to empower sovereign bondholders to assess climate risks and opportunities in their investments. It also equips other investors with information about the climate ambition and policy in the jurisdictions of their corporate investees.
Our findings highlight important climate policy gaps: it is especially concerning that only a few countries have made robust commitments to phase out fossil fuel subsidies or production. Countries need to demonstrate sound national transition planning, through costed mitigation measures and transparent climate-related budgets, for the next generation of NDCs to be investible. Transparency on these fronts will help channel much needed climate finance towards meeting the $1.3 trillion aim from public and private sources called for at COP29 - Antonina Scheer, Policy Fellow and Research Project Manager at the TPI Centre.
Investors play a pivotal role in driving the capital needed to support the global transition to a low-carbon economy: these flows require robust and tangible national climate and energy policies. ASCOR equips investors with critical data and bridges the gap between ambition and execution, ensuring that investments contribute to the resilient, low-carbon future the world urgently needs - Victoria Barron, Chief Sustainability Officer at GIB Asset Management and ASCOR Co-Chair.
The development and enhancement of the ASCOR initiative is a positive step forward, providing both governments and investors with a consistent framework with which to benchmark and assess countries’ efforts and transition towards a low-carbon economy - Claudia Gollmeier, Managing Director and Singapore Head of Investment Management APAC & MEA at Colchester Global Investors and ASCOR Co-Chair.
The expansion of the country coverage from the initial 25 pilot countries to 70 countries this year in the ASCOR tool is a key milestone, allowing investors to meaningfully analyse the majority of sovereign issuers in the major global government bond indices, including the FTSE World Government Bond Index. We look forward to further expansion of this list to over 100 countries in the future, covering all of the key Emerging Markets Bond Indices as well - Esther Law, Senior Portfolio Manager and EM Sovereign and Responsible Investing Lead at Amundi Asset Management and ASCOR Co-Chair.
Countries need to know that the finance required to meet their national climate goals is there. Without that confidence, they cannot achieve those goals. This is why ASCOR is so vital. It provides the basis for informed dialogue with countries so that investors can work practically in partnership with local investors, companies and other actors on a country-by-country basis to unlock the financial flows for the transition - Adam Matthews, Chief Responsible Investment Officer at Church of England Pensions Board and ASCOR Co-Chair.
For interviews with the authors, please contact Liam Collins on l.collins4@lse.ac.uk or gri.media@lse.ac.uk
Notes to editors
- The Transition Pathway Initiative Centre (TPI Centre), as the academic partner of the Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) project, has developed a publicly available and independent tool that assesses countries on climate change. The ASCOR project is led by asset owners, asset managers and investor networks. The ASCOR tool aims to inform investors’ decision-making on sovereign bonds and enable a more explicit consideration of climate change.
- The TPI Centre is an independent, authoritative source of research and data on the progress of corporate and sovereign entities in transitioning to a low-carbon economy. It is part of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE).
- The ASCOR Steering Committee is composed of the Asia Investor Group on Climate Change (AIGCC), the UN-convened Net-Zero Asset Owner Alliance (AOA), Ceres, the Investor Group on Climate Change (IGCC), the Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI). The ASCOR Advisory Committee includes Aktia Bank, Allspring Global Investments, Amundi Asset Management, the Church of England Pensions Board, Colchester Global Investors, Franklin Templeton, MFS Investment Management and Ninety One. The ASCOR project is supported by Chronos Sustainability.