MARCELO GORRINI
In August 2021, the UN issued a report based on more than 14,000 studies and approved by 195 governments stating that the Earth’s climate is changing more rapidly than previously predicted – with some unavoidable dire consequences for the future – and unequivocally linking climate change to human activity.
The report warns that “many changes in the climate system become larger in direct relation to increasing global warming. They include increases in the frequency and intensity of hot extremes, marine heatwaves, heavy precipitation, agricultural and ecological droughts in some regions, and proportion of intense tropical cyclones, as well as reductions in Arctic Sea ice, snow cover, and permafrost.”
In addition to facing external threats produced by climate change such as rising sea levels, more
extreme weather, and market instability, companies are also dealing with shifts in consumer demands and expectations.
In response, many industries, including the financial sector, are taking concrete action. Such activities are not purely altruistic, as they are linked to environmental, social, and governance (ESG) priorities driven by economic factors. These efforts include investing in global carbon markets, pursuing internal net-zero carbon goals, and assisting clients with their carbon transitions.
Global carbon markets
Standards outlining how a global carbon market would operate were established as part of the
2021 Paris Climate Agreement. This market allows carbon-producing companies (energy, mining, manufacturing, etc.) to purchase credits from other economic actors to offset their emissions. This places a global price on carbon and monetarily incentivises carbon-capturing activities such as replanting rainforests, restoring soil integrity, and preserving sensitive environments from development.
The voluntary international carbon market traded a record US$1 billion in November 2021, reflecting growing corporate demand to meet decarbonisation targets. Furthermore, according to a McKinsey and Co report, the global carbon market could grow exponentially in the coming years, totalling US$50 billion by 2030.
Internal net-zero carbon goals
As of July 2021, approximately 20 per cent of the world’s 2,000 largest public companies made net-zero carbon pledges designed to offset the totality of their carbon emissions. A significant incentive for these initiatives is growing consumer scrutiny of companies’ contributions to climate change. Customers no longer strictly associate brands with their products and services, but also their values and actions. Companies that do not respond to this shift in expectations risk losing both credibility and profitability.
Citi is one example of a financial institution taking proactive steps to achieve meaningful climate
commitments. On her first day as Citi’s CEO in March 2021, Jane Fraser announced that the bank would commit to a goal of net-zero greenhouse-gas (GHG) emissions by 2030.
Citi’s approach follows a credible, science-based methodology a
