While both the United States and Canada are making progress toward achieving net-zero emissions commitments, businesses must accelerate their efforts if they’re going to withstand the growing risks linked to climate-related disruption. That was one of the key takeaways from the Financial Women’s Association panel on “Climate change is in our backyards: Where are we on the path to net zero?” hosted by BMO Capital Markets as part of Climate Week NYC 2023 in New York.

Melissa Fifield, Head of the BMO Climate Institute, moderated the panel, which featured several leaders from across the financial industry, including:

• Tansy Stobart, VP Strategy and Global Markets, BMO Radicle

• Anya Solovieva, Director, Global Commercial Lead, Climate Solutions, Sustainalytics

• Fanny Charrier, Hydrogen Americas Coordinator, Corporate & Leveraged Finance, Crédit Agricole CIB

• Nate Aden, Head of Financial Sectorial Development, Science Based Targets initiative (SBTi)

Setting Achievable Targets

To kick off the discussion, BMO’s Melissa Fifield described the premise behind the Climate Institute, which is to bridge science, policy, finance and economics to help accelerate climate solutions. Engaging with industry, the public sector and academia is critical, she said, adding that financial institutions must also help channel more investments into sustainable initiatives to support the path to net zero.

“I believe that addressing the fundamental existential challenges we’re facing requires everybody; no matter what your skills or education, we need everybody at the table,” she said, noting she feels everyone in each department – accounting, finance, technology, science, communications and education – has a role.

BMO’s Tansy Stobart expanded on that idea, explaining that companies need to take a practical approach to reducing emissions. Between now and 2050, companies must be realistic about their interim targets, paying close attention to the costs associated with lowering emissions, she noted.

“By 2030, you start to see the internal cost of abatement become quite prohibitive,” she explained. Stobart expects the market for financial instruments like carbon credits will grow as the costs of internal emission–reduction projects increase and become less obvious to companies. Carbon credits, she explained, will be the financial instrument they need to help them get to net zero.

Investor Engagement

While businesses can’t afford to ignore the growing climate-related risks to their operations, investor engagement will be a key factor that will continue to motivate them on their journey to net zero. But for that to happen, investors and companies need access to better data, which Anya Solovieva said is Sustainalytics’ main focus right now.

New standards introduced by the International Sustainability Standards Board around scope 3 emissions, which are emissions that have not been generated or controlled by a company directly but result from its value chain, will be an important development to watch, noted Solovieva.

“Everyone’s really excited because they’re going to have more transparency around scope 3 emissions, and investors are starting to pay attention and understand that there is risk within the value chain,” she said. “With better accounting of a firm’s scope 3 emissions being mandated, investors are going to have that information so they can make better decisions.”

Investors also see that they have a role to play in helping influence the way companies approach climate change. “Increasingly, investors are starting to talk about engagement as a really important lever of driving company actions,” said Nate Aden at SBTi.

Innovation on Hydrogen

The U.S. Inflation Reduction Act (IRA), which became a law around a year ago, has been a game changer in attracting climate-related investment in the U.S. technologies that look to reduce the cost of producing hydrogen have been some of the many beneficiaries of the legislation, said Crédit Agricole CIB’s Fanny Charrier.

The IRA is helping advance the ways low carbon hydrogen is produced by encouraging innovation, economies of scale, and private investment. “If you can improve the technology, you can make it viable for a lot of the industry,” said Charrier. While building out the infrastructure needed to serve the consumer sector might prove challenging, larger industries like the fertilizer, cement, steel, maritime, aviation industries and trucking and rail could benefit from a larger hydrogen market.

The costs of some of these alternative fuels may be higher than fossil fuels now, but Charrier said those costs have to be viewed in a wider context, noting the difference isn’t as extreme once you factor in the price hikes people are having to pay as a direct result of climate change and the final product prices, among other things.

Looking Ahead to COP28

When asked what the panelists are focused on ahead of this year’s Conference of the Parties to the UN Framework Convention on Climate Change (COP28), Stobart said, “We can’t have double counting of emissions. Emission reductions have to be real and accountable.” That’s why she believes Article 6 of the Paris Agreement to create a country-to-country trading mechanism of emissions and knowing the implications for the voluntary and compliance carbon markets are important.

COP28 will take place from November 30 to December 12 in Dubai, and BMO will be on the ground there in support of our ambition to be our clients’ lead partner in the transition to a net-zero world.

This is part 3 of a 4-part series on Reflections from Climate Week NYC. 

Part 1: Transforming the Global Food System to Benefit Investors and the Planet

Part 2: Why Finance is a Key to Accelerating Carbon Removal Technologies

Part 4: BMO Hosts VCM Roundtable Discussion During NY Climate Week