The OECD Forum on Green Finance and Investment 2024 is a platform for discussions on aligning finance with global climate goals, focusing on mobilizing private investment, regulatory frameworks, and sustainable corporate practices. The forum covers key topics such as the need for robust transition planning, biodiversity finance, green bonds, and the integration of sustainable practices across industries. The event highlights the importance of collaboration between public and private sectors to support decarbonization, resilience, and other environmental goals, emphasizing a comprehensive approach to climate finance. Some takeaways when it comes especially to supporting corporate transition.
Transition Planning and Credibility
Transition plans are essential to align with the Paris Agreement’s targets. A successful plan should not only promise emission reductions but also ensure economic credibility, avoiding the pitfalls of greenwashing. Greenwashing, where companies falsely present themselves as environmentally friendly, undermines genuine efforts and is a significant concern. Therefore, credible transition plans are needed, focusing on long-term transformation and measurable impact.
Scope 3 can be 26 Times Higher for Companies, but Collecting the Scope 3 Data is Not That Important
Level of adoptions by private sector is basically worrying. For example, CDP (Carbon Disclosure Project) data shows that while two-thirds of global companies report on climate data, only a quarter have some form of transition plan. However, only about 1% (31 companies) have plans deemed “credible,” meeting CDP’s comprehensive 21-data-point framework. This suggests that most businesses still have a long way to go in developing rigorous, trustworthy strategies. One major issue is the lack of reliable data on Scope 3 emissions (indirect emissions throughout a company’s supply chain), which are often 26 times higher than direct (Scope 1 and 2) emissions.
On the other hand, initiatives the like The Climate Bonds Initiative focuses on creating frameworks for green finance, promoting the issuance of bonds to support climate-friendly projects. Unlike CDP, CBI does not emphasize the need for detailed Scope 3 data. That can be useful for obvious industries the like oil and gas or automotive chains. Instead, they however primarily advocate for clear, scalable plans developed by issuers that demonstrate how companies can support the climate transition efficiently. CBI notes that existing Nationally Determined Contributions (NDCs) under the Paris Agreement are often insufficient, calling for stronger, scalable plans that can rapidly mobilize private sector resources expected to be perhaps and hopefully released through the upcoming COP 29. CBI is also working and calling towards stronger coherence with other organizations like CDP and the Science-Based Targets initiative (SBTi), aiming to harmonize expectations across different regions and industries. By developing taxonomies that guide investors, they enhance the alignment between private investments and sustainable practices, sending a clear message to economic actors about the urgency of the climate crisis.
All in all, the question of balance between efforts to collect unavailable scope 3 data – especially across value chains, and instead focusing on supporting industry wide or territorial specific programs fast tracking decarbonization on clearly identified hotspots has yet to be found.
Cooperation Between Public and Private Investors is Key to Amplify Climate Action
Cooperation between public and private sector is also critical to provide long term regulatory vision, and decrease climate transition risks taken by private sector. For example, initiatives like Japan’s GX Agency play a critical role in this context by merging public support with private investment to drive green transformation at scale. Japan’s Green Transformation (GX) Agency emphasizes indeed transformation rather than mere transition, aiming to accelerate private investments in green solutions. Unlike typical transition plans, the GX Agency seeks to create a stable regulatory environment that encourages companies to invest in long-term climate strategies. This approach blends public and private efforts, providing a holistic framework for sustainable growth and addressing urgent environmental challenges.
In view of demographics, as much as where extensive scope 3 emissions of global chains can lie, the inclusion of emerging economies is obviously critical. In this space, The International Finance Corporation (IFC) has committed to aligning 85% of its investments with the Paris Agreement, incorporating transition as a central investment lens. For the IFC, assessing the robustness of a company’s transition plan is a prerequisite for funding. Their approach includes safeguarding against risks through performance standards and ensuring that no investment causes harm. The IFC recognizes the significant gap in Scope 3 emissions data, particularly in emerging economies, where these indirect emissions dominate the carbon footprint. To address this, they support capacity-building initiatives that help companies develop better data reporting and transition plans. Monitoring and continuous assessment are key to ensuring that investments achieve meaningful environmental impact, and corrective measures are taken as necessary to enhance outcomes.
Challenges and Opportunities in the Green Transition
Despite advances, more government action is needed to increase private sector contributions with credible transition plans. CDP highlights the absence of a unified global reporting standard, which hampers the consistency and comparability of data across companies and industries in context of growing data disclosure. India, for instance, has seen a 100% year-on-year growth in climate data reporting, showing significant progress. However, the lack of standardized frameworks still poses challenges.
The IFC emphasizes that without greater rigor and comparability, it becomes difficult to assess and challenge transition plans effectively. This is crucial, as not all transition efforts lead to positive economic impacts; some can cause short-term disruptions, which can create resistance. Hence, robust frameworks are necessary to balance environmental goals with economic realities, ensuring smoother transitions.
CBI further stresses the need for public initiatives to drive market demand aligned with scientific recommendations. This involves building enabling programs, providing financing, and establishing clear agreements that incentivize companies to adopt sustainable practices. Collaboration between governments and private entities, such as seen in Japan’s GX initiative, can accelerate these efforts by blending resources, reducing risks, and encouraging large-scale adoption of green solutions.
The global transition to a low-carbon economy is complex, requiring coordination across multiple sectors and regions. While the principles behind transition planning are straightforward, executing them effectively involves numerous challenges. One of the most critical is the risk of greenwashing, where companies mislead stakeholders about their environmental efforts. Without credible, transparent, and consistent transition plans, there is a risk of losing public trust and misallocating capital, which could otherwise drive meaningful climate action.
The lack of comprehensive Scope 3 data is another significant hurdle. Most companies have started reporting direct emissions, but their supply chains—often responsible for the majority of their carbon footprint—remain opaque. Improved data collection and reporting standards, especially in emerging economies, are crucial for addressing this gap. Companies need support not only from governments but also from investors and international organizations to build capacity and enhance transparency in reporting.
Despite these challenges, the rapid development of green finance initiatives, such as green bonds and sustainability-linked loans, offers hope. Tools like the taxonomies developed by CBI and the frameworks from CDP are helping standardize what constitutes a credible transition plan. By setting clear guidelines, these initiatives are sending strong signals to the market, encouraging companies to adopt robust climate strategies and align their operations with global climate goals.
Conclusion
The OECD Forum on Green Finance and Investment 2024 underscores the urgency of developing and implementing robust transition plans. Whether through the frameworks established by the CDP, the transformative approach of Japan’s GX Agency, or the investment strategies of the IFC, a common theme is the need for credible, scalable solutions that can mobilize private sector engagement effectively.
To achieve the Paris Agreement goals, companies must move beyond superficial commitments and invest in long-term transformation strategies. Government action, in the form of standardized regulations and supportive financial mechanisms, is essential to create a level playing field and encourage widespread adoption of green practices. By blending public and private efforts, and leveraging frameworks like those developed by CBI and CDP, there is potential for significant progress in building a sustainable global economy. However, the road ahead demands collaboration, innovation, and a steadfast commitment to transparency and accountability.
Author of several books and resources on business, sustainability and responsibility. Working with top decision makers pursuing transformational changes for their organizations, leaders and industries. Working with executives improving resilience and competitiveness of their company and products given their climate and human right business agendas. Connect with Farid Baddache on Twitter at @Fbaddache.
