AGENDA

The credible Paris-aligned transformation of the manufacturing industry 's transformation aligned with a net-zero path will be critical in achieving global net-zero targets since the sector is a major source of total global CO2 emissions. Significant gaps and uncertainties remain about how governments and industry actors will deploy low-carbon technology options, as well as which enabling conditions, financing sources and instruments can unlock the needed investments, especially in emerging and developing economies. As one key solution, transition finance aims to unlock capital for emission-intensive industries, like manufacturing, to bring investments onto a Paris-aligned pathway. However, the transition finance market remains nascent and different approaches continue to bear risks of greenwashing and carbon lock-in, thus compromising the environmental credibility of this market. Building on the forthcoming OECD report ‘Mechanisms to prevent carbon lock-in in transition finance’, this plenary will discuss how transition finance can be credibly scaled up to mobilise investment for low-carbon technology options in high-emitting industries like manufacturing in developing countries, while avoiding risk of carbon lock-in.

Large-scale mobilisation of finance for mitigation and adaptation investments is central to meeting climate and development goals, but progress is far too slow. The Sharm El Sheikh Guidebook For Just Financing by the Egyptian COP27 Presidency sets out recommendations for different stakeholders – governments, donors and development banks, and private sector – with the aim of turning commitments into implementable climate-related projects and of capturing opportunities for climate and development investments. The panel will discuss the state of progress on mobilising finance, remaining bottlenecks, as well as key priorities and opportunities to shift the needle on mobilisation, and advance climate action ahead of COP28.

SMEs are increasingly affected by emerging sustainability reporting requirements. Not only are SME suppliers of large enterprises being called upon to provide data on their sustainability performance or they risk losing contracts with reporting entities, but a large share of the SME population is also at risk of losing access to external financing from providers that are now required to report on the sustainability of their financed portfolios. Yet few SMEs currently measure and report on their sustainability performance, and most SMEs have limited resources and capacities to undertake such reporting. The risk is amplified for SMEs in high emitting and hard-to-abate sectors and regions as financial institutions seek to steer their financing and investment portfolios toward green and sustainable investments and sectors. This session will explore these emerging challenges and the role that different actors - at the national and regional level - can play in supporting SMEs in this changing financing ecosystem.

Climate change mitigation scenarios play a crucial role in guiding the financial sector’s target setting, transition planning and Paris alignment assessments. However, assumptions and uncertainties associated with such scenarios are not necessarily well understood. Building on the findings of novel OECD analysis, this session will discuss the consistency with the Paris Agreement of scenarios currently used in finance, their scope and granularity, as well as underlying assumptions and limitations. The session will inform climate policy makers, climate scenario developers, climate-related assessment methodology providers and financial market participants on how they each and collectively may contribute to improved design and use of climate change mitigation scenarios.

Materialising hydrogen’s potential for the net-zero economy requires a significant scale up in investments across the value chain, ranging from dedicated renewable power to transport and storage infrastructure. A large share of the required global average annual investments of up to USD 1 trillion per year for hydrogen development will be needed in emerging and developing economies. Realising this will require fostering an enabling environment for hydrogen through national roadmaps, regulatory frameworks, and policies. Enabling conditions will need to be complemented with innovative financing since hydrogen is still at its early stages of development and poses high risks to project developers and financiers. Building on OECD work on green hydrogen, this session will focus on effective financing solutions and identify blind spots for accelerating the adoption of green hydrogen in emerging and developing economies.

Recent momentum behind commitments made by financial institutions on net zero GHG emissions is encouraging. However, turning increased ambition into outcomes that contribute to a net zero transition by 2050 remains a major challenge. There is a need for a range of robust and comparable metrics and information to better understand, identify and assess the climate change mitigation impact of assets and activities in financial markets, as well as facilitate capital allocation towards activities that support a net zero transition. This session will bring together policy makers market participants and stakeholders to discuss progress on consistent metrics to monitor financial institutions’ net zero commitments and help facilitate the reallocation of capital towards financing the transition to low-GHG emissions alternatives. This session will build on the earlier break-out session on “The use of climate mitigation scenarios for financial sector target setting, transition planning and alignment assessment”, as well as on the plenary “Accelerating the climate transition of emission-intensive sectors”.

To keep global warming to no more than 1.5°C – as called for in the Paris Agreement – emissions need to be reduced by 45% by 2030 and reach net zero by 2050. Doing so will require transformational breakthroughs and dramatic upscaling in mobilising public-private finance and investment to developing countries. It requires actions, partnerships and systemic change on multiple levels. At country level, a holistic, whole-of-government, demand-and-supply-focused approach is needed to create and ensure an attractive investment climate to support a robust pipeline of bankable projects. All country- and regional-level investment programmes and country/sector platforms can benefit from the direct involvement of (i) investors, banks, related networks and (ii) public financial institutions (PFIs) (MDBs, IFIs, bilateral donors, NDBs, public green investment banks), with iii) investee country governments having clear ownership. This inclusive approach can enable, across a range of platforms, the development and implementation of targeted, effective blended finance, and a clear focus on investable opportunities. What is needed from MDBs, donors and public financial institutions to achieve a 1.5 degree global warming target? What changes are required for an effective green finance and investment ecosystem?

There is an urgent need to scale-up investments in adaptation and resilience to manage risks, realise opportunities and avoid locking-in vulnerability. There are USD 1.7 trillion of opportunities for investments in adaptation according to the Global Commission on Adaptation, yet recorded finance flows are a small fraction of what is required. This session will explore how to achieve a step-change in finance flows for adaptation, moving from small projects to the needed economy-wide transition. It will identify priorities for enhanced public-private collaboration to help unlock capital at scale.

The Inclusive Forum on Carbon Mitigation Approaches (IFCMA) is the OECD's flagship initiative to help optimise the global impact of emissions reduction efforts around the world through better data and information sharing, evidence-based mutual learning and inclusive multilateral dialogue. Mitigation policy settings are integral to creating favourable conditions for finance and investment. The IFCMA is taking stock of different carbon mitigation approaches, mapping policies to the emissions they cover, and estimating their comparative impact in terms of emissions mitigation. This session will consider how the IFCMA's work can: • Support governments maximise the effect of mitigation policies in attracting climate-related finance and investment. • Provide context to enable them to consider options for re-aligning financial flows to support the effective implementation of climate mitigation policies.

Inequalities of opportunities and well-being continue to persist within and between countries. It is increasingly clear that environmental challenges and social inequalities are deeply intertwined and mutually reinforcing. For example, evidence shows that disadvantaged households are the most affected by environmental degradation and that the impacts of climate change are not gender neutral. Social inequalities, including persistent gender gaps, undermine our collective human and economic potential and the foundations of the economic and social systems on which businesses and financial institutions rely on. The financial sector therefore has a stake in addressing systemic environmental and social risks and impacts. This session will examine ways to address social and inequality-related risks, what investors and financial institutions are already doing about them, and what more needs to happen.

Many net-zero commitments rely on future access to offsets from the voluntary carbon market to “net” residual emissions. Voluntary carbon markets could accelerate progress towards Paris Agreement goals, but their environmental integrity has also been questioned. Several initiatives and regulators are now working to enhance the credibility of credit supply and credit use, as well as the functioning of credit markets. The green finance and investment community could play an important role in accelerating environmental integrity improvements, so that offsets can make a reliable and proportionate contribution in net-zero transitions. This session will focus on the latest developments in the voluntary carbon markets landscape, bringing in experts to discuss key issues and the way forward.

As institutional investors increasingly commit to climate goals and net-zero targets, a pivotal question arises: how can Paris-aligned portfolios lead to real economy decarbonisation? Climate stewardship and corporate engagement – the practices through which investors can influence conduct of their investees – is being progressively mainstreamed as a way to translate these commitments into tangible outcomes. Yet, engagement has taken many forms, leading to mixed impacts and leaving room for missed engagement opportunities and potential greenwashing. In view of the recent update of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the upcoming tool for institutional investors on “Managing Climate Risks and Impacts through Due Diligence for Responsible Business Conduct“, this session will explore how the RBC due diligence framework can be applied throughout institutional investors’ stewardship efforts to more consistently manage climate risks and impacts associated with investee companies. The session will connect the dots between current trends in corporate engagement and stewardship, transition plans, divestment and just transition considerations for investors while reflecting on the upcoming regulatory development in that space.

There is growing recognition that the financial sector is materially exposed to water-related physical risks and this exposure is not fully captured by current risk-assessment tools. This leaves the financial system exposed to water-related risks, whilst at the same time, missing out on water-related investment opportunities. Water is at the heart of both climate change impacts and nature crises. In order to effectively address these crises, the financial system’s understanding of water-related risks needs to be strengthened. Moreover, it is becoming clearer that nature related risks, including water, have potentially significant macroeconomic implications, and that failure to account for, mitigate, and adapt to these implications is a source of financial stability risk. The aim of this session is to raise awareness on water-related risks, impacts and opportunities for investors. This session will include a discussion on the business case to investors for assessing water dependencies and impacts, recent developments in risk assessments tools used by financial institutions and rating agencies, and finally supervisory guidance on assessing water-related risks.

This session will focus on investment treaties’ alignment with net-zero goals, from the perspective of Article 2.1(c) of the Paris Agreement to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. The discussion will consider approaches to the definition of covered investment and other investment treaty provisions relevant to the consistency of the finance flows promoted by investment treaties with a net zero pathway. This session will also address the issue of the impact of investment treaties and their interpretation on government policy space and incentives to engage in climate policies and will examine recent reforms and reform proposals.

The plenary session will discuss the development of frameworks to assess nature-related financial risks. The session will start with a presentation of the new OECD report ‘supervisory framework for assessing nature-related financial risks: Identifying and navigating biodiversity-related financial risks’. This report is part of a wider project in partnership with the European Commission (DG REFORM) and the Hungarian central bank, and funded by the European Union. In this context, the session will cover the need to balance a sufficiently granular approach, with the need to integrate different nature-related financial risks to understand the risk as a whole to the financial system. Moreover, it will discuss the role of central banks and how emerging frameworks and reporting standards can help facilitate action to mitigate financial risks stemming from nature degradation. Finally, the session will cover the remaining challenges and barriers to progress on mitigating these risks for the financial sector.