Building Bridges 2023: Data and Standards and How They Can Contribute to Climate-Aligned Financial Flows

Article 2.1c of the Paris Agreement states that financial flows must be made consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. While this goal seems relatively clear and straightforward at first glance, the operationalization of the article and thus a globally consistent understanding of what constitutes climate-aligned financial flows has not yet been achieved. This is where we see data and standards playing a critical role in providing a basis for further discussion.

Without Data and Standards It Does Not Work

The first step in understanding where a company stands in terms of its impact on the climate, but also its exposure to climate risks, is data. Data is needed, on the one hand, for companies that emit greenhouse gases, to know where they stand. Quentin Piat, Head of Sustainability at LEM International SA, underlined this: “For the real economy sector, the quality of ESG data collected and the resulting KPIs determines the ability to attract external capital, new customers and talents”. On the other hand, financial institutions rely on emission data of companies to know where the financial flows are directed. Only when a company knows where it stands in terms of its impact can it also identify potential high-leverage actions and set targets. Standards that lay down certain rules for measurement and/or disclosure contribute to a common understanding and comparability between different actors. This is particularly important given that we live in an interconnected world where not only different economic actors interact, but trade and business are also conducted on an international scale.

To operationalise Article 2.1c, we believe it is essential to have a common understanding of what is being discussed and to have consistent and comparable data. In this respect, Gabriela Blatter, Principal Policy Advisor for International Environment Finance at the Federal Office of the Environment (FOEN) considers that “reliability, comparability and usability are key characteristics that must be considered together when speaking about data and standards”. With a common starting point, the issue can be tackled, accelerated and, as a result, financial flows can be directed towards a climate-aligned way. In his keynote speech, Oliver Marchand, Global Head of climate research at MSCI, underscored this: “The ISSB standard will make climate reporting as commonplace and important as financial reporting is today”.

ISSB and NDZPU: Taking Measures to the Next Level

Recent developments in the field of data and standards are encouraging: In June, the International Sustainability Standards Board (ISSB) released its first two sets of reporting standards. Clear standards will allow companies to report consistent data across different jurisdictions, which also enables financial institutions to do so. Having capital markets authorities that regulate more than 95% of the world’s securities markets, the International Organization of Securities Commissions (IOSCO) is now asking its member jurisdictions to consider incorporating the ISSB Standards into their respective frameworks. Through integration into national frameworks, an important aspect of the public-initiated Article 2.1c finds its way into the economy and must be implemented by it.

Regarding data, the Net Zero Data Public Utility (NZDPU) is expected to release its proof of concept at COP28. The goal of the NZDPU is to create a central and free data repository for climate-related data. This will create a high quality, comprehensive and global base of climate information that is accessible to all. The NZDPU is overseen by the Climate Data Steering Committee, which brings together global regulators, policymakers, standard setters, data service providers and civil society. This ensures that international and cross-sector support is already in place at the development stage. In this context, Swiss financial institutions have committed to provide critical feedback as early testers for the NZDPU.

Figure: Mechanisms between the Paris Agreement goals and their application in the economy

August Benz, Deputy CEO at the SBA, said: “Complexity in climate finance must be managed so that constructive dialogue takes places between every stakeholder involved”. What distinguishes NZDPU and the ISSB standards from other measures in this field is the fact that they bring together various existing individual measures by public and private actors and bundle them into a consolidated vessel. Particular interests are put aside to work out a common solution. For example, large and well-known data providers support the NZDPU. This links different initiatives from different actors, increases the scale and scope and makes them more relevant for all.

In conclusion, and in the spirit of Building Bridges, the discussion at the workshop of SBA, AMAS and FGPF nicely illustrated what the international initiatives such as ISSB and NZDPU already show: To bring financial flows in line with the Paris Agreement, cooperation at local, national and global level and between all stakeholders concerned is essential.