On November 5, 2019, the US initiated its withdrawal from the Paris Agreement on climate change. While this decision has been controversial, the work to mitigate climate change will continue on in many corners of the US, as elected officials in 24 states and 430 cities have agreed to take action, according to America’s Pledge.

Across the rest of the world, the Paris Agreement remains paramount, with 196 countries committed to the accord. Given its prominence in efforts to limit the effects of climate change, it will likely remain front of mind for environmentally focused groups and impact investors for years to come.

What Is the Paris Agreement?

The roots of the Paris Agreement reach back to 1994, when world governments started engaging with the United Nations Framework Convention on Climate Change (UNFCC), which had been hatched at the 1992 Rio Earth Summit. In setting the course for future efforts, the UNFCC acknowledged that a problem existed, emphasized that developed countries must lead the way in addressing the issue, and allowed for financing for developing countries to combat climate change.

The next 20 years of deliberation at the United Nations Climate Change Conference led to the treaty known as the Paris Agreement, which was unveiled in December 2015.

The heart of the accord directly targets the threats of climate change by pressing nations to limit the rise in global warming to 2.0 degrees Celsius—with a strong push to keep it below 1.5 degrees Celsius. Additionally, the treaty set mitigation goals targeting root causes of the problem and established adaptation goals designed to help communities already suffering from climate change.

UN Secretary General António Guterres described the goals as “absolutely essential” to avoiding potential economic, social, and security issues stemming from climate deterioration in the future.

The heart of the Paris Agreement directly targets the threats of global climate change by pressing nations to limit the rise in global warming to 2.0 degrees Celsius—with a strong push to keep it below 1.5 degrees Celsius.

The Paris Agreement and Environmental Investing

Not long after the Paris Agreement was announced, the International Finance Commission (IFC) said that 189 countries developed plans in response to the accord, totalling $23 trillion worth of investment opportunities by 2030 in emerging markets alone. Early success stories include the funding of a 215-megawatt wind farm in Panama and a 510-megawatt concentrated solar plant in Morocco.

But to better align private investors and their risk tolerances with the massive amounts of capital required, the IFC recommended that governments:

  • Convert climate-related goals into broader growth strategies.
  • Enact investment-related policies, processes, and incentives that raise transparency and boost investor confidence.
  • Strategically direct public monies into early-stage initiatives.

Meanwhile, shareholder engagement efforts, which have seen some success in commanding the attention of large companies, have weakened since the US Securities and Exchange Commission sided with a number of fossil fuel companies in shareholder resolution challenges.

While the global urgency that propelled the Paris Agreement to the fore remains intact for many, harnessing the power of financial backers will likely remain a continued challenge.

Want to learn more about the Paris Agreement? Read:

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