2020 is a make-or-break year for sustainable finance

With the world’s biggest carbon market coming, the SDGs’ fifth birthday, a US election and new global climate goals, we must not allow ’climate lock-in’

The next 363 days will either be the most game-changing that sustainable finance has ever seen, or the most bitterly disappointing. 

2020 is a year of unprecedented milestones. A year which promises to make sustainability – climate change, especially – an un-ignorable and indisputable driver of financial risk and return for investors everywhere. 

It’s the year in which China will launch the biggest carbon market in the world. After years of pilots, the country is expected to roll out its national scheme during 2020 and, as well as having cost implications for countless supply chains worldwide, it could take us an important step closer to being able to have a global carbon price – the nearest thing to a silver bullet there is for climate finance. 

The result of the US election will set the tone for negotiations at this year’s COP climate talks

It’s also the year in which climate finance will formally enter European law for the first time. Both the EU’s green taxonomy and its disclosure regulation will be introduced in 2020 (although neither will come into full force until 2021). The EU Action Plan on Sustainable Finance, which triggered so much of the international interest in ESG in 2019, will also be updated in the second half of the year, with even more policy proposals and guidance put on the table for the years ahead. 

And, of course, 2020 is the year of a US election that will singlehandedly decide the success of the Paris Agreement. Under Trump, the country will formally withdraw from the international climate pact on November 4; so a lot rests on the election that falls just one day earlier, on November 3. A country can “rejoin” the Paris Agreement anytime, and it takes 30 days to get back in. 

The result of the US election will set the tone for negotiations at this year’s COP climate talks, the most important since the Paris Agreement was reached five years ago.

In November, governments from around the globe will gather in Scotland with one objective: to agree more ambitious climate commitments. 2020 is the year that Nationally Determined Contributions will be tightened with the hope of bringing us closer to achieving a 1.5 degree world. 

The outcome of those negotiations will form the foundations of future political and legal decision-making, and could provide some much-sought-after predictability for investors and financial institutions everywhere, so it is vital that COP26 offers up more substance than its predecessor, the underwhelming climate negotiations in Madrid last month.

While the US’s climate destiny hangs in the balance, elsewhere in North America, 2020 offers a clearer path for investors. By the end of the year, Canada is slated to have its own green taxonomy and sustainable fund label, as well as a national version of Climate Action 100+ – the mammoth global collaborative investor engagement project that seeks to steward big emitters towards Paris alignment.

And indeed, CA100+ itself is set for a big milestone this summer: the five-year initiative, backed by more than 370 institutional investors, will hit its halfway point in June. It’s the biggest proof-of-concept there has ever been for investor engagement, so a lot rests on its success.

So far it has claimed a handful of high-profile victories, but with 160 companies on its hit list and 2.5 years under its belt, it will have to demonstrate its broader ability to effect meaningful change in the global economy in 2020 – it is no longer ‘early days'. 

There will be major milestones beyond climate change this year, too. In September, the Sustainable Development Goals will be five years old; a third of the way through their lifespan. As the 28 EU member states (or 27, depending on how Brexit develops) finally commit to integrating the goals into their decision making, the UN will no doubt be performing a stock take of how much, or indeed how little, progress has been made towards achieving them so far – and hopefully ramping up pressure on its members to make more credible efforts on the 17 objectives. 

Sustainable finance experts have been talking about carbon ‘lock in’ for years: that any ‘dirty' assets that are permitted or financed now will be with us, emissions and all, for another full life cycle. There are often decades between these decision-making moments. 

What we really need to talk about in 2020 is wider climate lock-in: if investors, politicians, journalists and policymakers allow the precious opportunities of the next 12 months to fall short of their potential, it will be a long time before we get another chance.

And, with hundreds of governments having now declared climate emergencies, with 2019 seeing the highest levels of carbon dioxide in the atmosphere ever recorded, and with deadly fires currently sweeping through Australia, it is clear that we can’t afford to wait a long time.