Series: Occasional Papers. 2515.
Author: Ignacio Félez de Torres, Clara I. González Martínez and Elena Triebskorn
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Abstract
With the effects of climate change becoming more evident every year, preventing and, ideally, reversing it is a pressing challenge. The Paris Agreement was a milestone in the fight against climate change, establishing a series of specific targets for 2050. The agreement sets out various goals, including to hold the increase in the global temperature to below 2°C above pre-industrial levels and to pursue efforts to limit the increase to 1.5°C. Assessing the world’s progress towards this goal requires forward-looking information on the transition to net-zero of countries, companies and the financial sector.
In this paper, we begin by highlighting the importance of forward-looking indicators for assessing climate-related transition risks, both for corporations and countries. We then assess a range of currently available data sources, which provide a variety of indicators, particularly for corporations. However, we find that results vary depending on the data sources used, and only a limited number of firms, primarily large ones, are currently disclosing forward-looking indicators. These discrepancies can partly be attributed to differences in methodology, they are not always easy to understand, nor are they always comparable or communicated transparently. Therefore, their appropriate use depends on specific use cases. We also analyse the goals and pathways established by countries to achieve the Paris Agreement’s main target to limit the increase in global temperature through different data sources and frameworks. We find that there are different approaches based on the original goals set by each country with different coverage.
We close the paper by outlining potential ways forward for central banks and ways by which statisticians, standard setters and other relevant stakeholders, including private entities, can help improve the quality, accessibility and comparability of forward-looking climate transition risk data.