Why the net-zero transition needs a transparency boost

The COP27 conference progresses amidst the backdrop of surmounting evidence that the time to act on delivering a net-zero transformation is shrinking fast. The 2021 assessment report by the Intergovernmental Panel on Climate Change (IPCC) highlighted the necessity to halve global emissions by 2030 to maintain the trajectory of net-zero emissions by 2050. Barring the COVID-19-induced drop, global greenhouse gas (GHG) emissions have never experienced an annual decline. Responding to the scale and urgency of this challenge, a diverse group of stakeholders – governments, intergovernmental organizations, investors, companies and consumers – have amplified efforts to bend the emissions curve. The time-sensitive nature of the challenge requires climate action to be rooted in robust evidence, necessitating a strong foundation of transparency at multiple levels.

Access to consistent, comparable and comprehensive information helps to enable the design of effective policies, business models and funding strategies and to establish trust and momentum in the adaptation and mitigation efforts.

The collective action nature of climate action requires timely, consistent and comparable information on a wide range of environmental, social and economic parameters at the country level. Data gaps are already posing challenges to international collaboration. For eight of the 17 Sustainable Development Goals (SDGs), only less than half of the countries have internationally comparable data and the gap is particularly severe for Goal 13 – Climate Action.

Sustained and timely progress, international collaboration, trust and accountability on country action on climate change rest on a robust foundation of transparency. The Paris Agreement in 2015 established the Enhanced Transparency Framework (ETF) as a universal and standardised process to track countries’ progress towards their Nationally Determined Contributions (NDC’s), expected to be operational no later than 2024. This level of transparency, however, requires substantial capacity building in data governance systems, financial resources and technical expertise in information system development and operation, and frameworks for interoperability and comparability of information – especially in developing countries.

According to the International Energy Agency, investments in clean energy and infrastructure will need to increase threefold by 2030 to stay on track for net-zero by 2050. The investment gap is particularly large in emerging economies, which will be the source of incremental energy demand. Africa accounts for 39% of global renewable energy potential and yet received only 2% of clean energy investments last decade, partly due to the high risks associated with long-term investments.

Transparency on risk profiles by countries, technologies and projects can enable appropriate policy responses and unlock investments, especially in the current environment of tight monetary policy. The Cost of Capital Observatory, an initiative by IEA in collaboration with the World Economic Forum, Imperial College London, ETH Zurich and Accenture, is a step in this direction. It provides aggregated data that did not exist before and builds a greater understanding of the $800 billion clean energy financing gap that exists between developed and emerging and developing economies. By deepening the understanding of the major risks driving the higher cost of capital in emerging economies, financiers, policymakers, multilateral institutions and project developers will be able to better develop collaborations that help to tackle the risk and lower the overall costs of these investments.

In addition to enabling increasing volumes of investment, transparency is also a key enabler for managing systemic risks from climate change to the financial system. Effective capital allocation to sustainable business models and measures to ensure macroeconomic financial stability against climate risks rely on timely, comparable and verifiable data on climate metrics, targets from companies and a harmonised set of climate disclosure standards. According to the International Monetary Fund, there are more than 200 climate disclosure frameworks across 40 countries, which undermines the decision-usefulness of the information for capital allocation and climate-risk assessment. Convergence among sustainability disclosure frameworks and standards is a critical step towards strengthening transparency and greening the financial system.

With the increasing urgency of immediate action to mitigate climate change, companies have emerged as champions of decarbonisation. More than 7,000 companies from across the world have joined the Race to Zero Campaign, setting ambitions aligned with 1.5 degrees. There is considerable variation in the robustness of corporate pledges, however, on account of differences in methodologies, definitions, boundaries of emissions coverage and instruments used to account for emission reductions. A high degree of transparency on corporate climate action, with clear, accessible and comparable data, is essential to ensure that pledges are followed by tangible actions. According to the UN High Level Expert Group on Net Zero Commitments, a uniform verification system for net-zero pledges can mitigate barriers to faster progress and create an "ambition loop" among companies. The Net Zero Data Public Utility initiative, though still in its initial stages, is a step in this direction.

Sectoral challenges in setting and communicating net-zero ambitions and progress are a barrier to achieving transparency on private sector action. According to the Science Based Targets Initiative, which sets sectoral net-zero standards and validates company strategies for alignment with 1.5 degrees, emissions-intensive industries are under-represented among companies with validated science-based targets – specifically from companies from energy, materials and infrastructure sectors. These sectors collectively contribute 30% of global greenhouse gas emissions and there is no net-zero without heavy industries. Sectoral differences in processes, complexity in supply chains, lack of clarity on definitions and thresholds of net-zero products and a multitude of disclosure frameworks act as hindrances to transparency on heavy industries’ progress to net-zero.

The Net-Zero Industry Tracker, an initiative by World Economic Forum in collaboration with Accenture, attempts to bridge this gap with a standardised and comprehensive framework with uniform methodologies, targets and definitions to assess sectoral progress to net-zero and to support the identification of specific enablers that require attention to accelerate the decarbonisation of these sectors.

Access to comprehensive, timely, comparable and robust information is the first step in building effective strategies, establishing trust among stakeholders and enabling best practice sharing on the road to net-zero. Setting uniform guidelines for data reporting at different levels, establishing a data governance system, ensuring financing for transparency capacity building, especially in developing countries, and leveraging innovative technologies can help bridge the data gap.

Ahead of the Global Stocktake of the Paris Agreement in the next COP 28 in the United Arab Emirates, transparency on climate change at national, sectoral and organizational levels is paramount. COP27 is a critical moment for identifying the gaps in data and opportunities to collaborate across sectors to provide access to the information that helps to design effective strategies for the future.