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1. Distinguishing Among Climate Change-Related Risks

Author:
Lisa Sachs, Denise Hearn, Matt Goldklang, and Perrine Toledano
Publication Date:
02-2025
Content Type:
Special Report
Institution:
Columbia Center on Sustainable Investment
Abstract:
Understanding the diverse types of climate change-related risks is crucial for developing effective strategies to address the global climate crisis. A holistic yet disaggregated approach allows for a comprehensive view of the challenges while enabling targeted responses from various stakeholders. This document outlines three main categories of climate-related risks: planetary, economic, and financial, detailing their relevance to various stakeholders, timeframes, and potential response strategies. This short brief aims to disentangle the complex nature of risk discussions for productive discourse and appropriate risk management approaches for different stakeholders. In practice, discussions related to assessing and responding to climate change risk have conflated categories of risk, confusing discussions and undermining the effectiveness of related strategies. We hope this brief can bring clarity and rigor to analyses of risk and support constructive discussion among policymakers, financial institutions, social sector actors, and the public. We plan to follow this short briefing with a longer report including more detailed analysis, integrating feedback to these initial ideas.
Topic:
Climate Change, Finance, Economy, Investment, Risk, and Sustainability
Political Geography:
Global Focus

2. Finance For Zero: Redefining Financial-Sector Action to Achieve Global Climate Goals

Author:
Lisa Sachs, Nora Mardirossian, and Perrine Toledano
Publication Date:
06-2023
Content Type:
Special Report
Institution:
Columbia Center on Sustainable Investment
Abstract:
As of 2023, the financial system is woefully misaligned with the world’s climate goals. Six times the current annual level of investment in non-fossil fuel investments is needed between 2023 and 2030 to stay on a 1.5ºC warming pathway.1 The ratio of clean-energy lending and equity underwriting by banks relative to fossil fuels needs to reach 4 to 1 by 2030, whereas for 1,142 assessed banks, the ratio was between 0.8 and 1 at the end of 2021.2 As providers, underwriters, and fiduciaries of trillions of dollars of capital flows annually, financial institutions (FIs) play a critical role in decarbonizing the economy and scaling access to clean, affordable energy. Optimally, the roles and opportunities for the financial sector should be guided by an official pathway and associated policy tools, such as carbon pricing, public finance and guarantees, strategic subsidies, sectoral regulations, and so on. Unfortunately, that policy framework to shape and guide the financial sector does not yet exist. In the absence of strong government leadership, there has been a proliferation of bottomup models, tools, metrics, methodologies, and initiatives designed to measure and evaluate the climate performance of financial institutions. While the rapid growth of these initiatives demonstrates the financial sector’s engagement, meaningful progress in realigning global finance to support climate goals has been limited. These frameworks and tools often overstate or misrepresent the extent to which they support meaningful action toward achieving climate goals, and at times rely on misaligned targets or metrics that undermine their effectiveness as tools for setting or assessing corporate commitments. Overall, existing commitments and strategies are not sufficiently aligned with the actions needed from financial sector actors to achieve climate goals. There are deep and inherent limitations to bottom-up approaches to achieving decarbonization, some that are within the capability of financial institutions to address but many that are beyond their remit. This report focuses on the things the financial sector can and should do even in the absence of a robust long-term policy framework. Part 1 of this report urges FIs and their alliances to be clear in their commitments, pledges, and communications about their climate-related objectives and corresponding strategies, their limitations, if any, and how they measure success. Current climate-related pledges, alliances, frameworks, and tools at times confuse or conflate risk mitigation with climate action, relying on targets and metrics that may not be fit for purpose. Whether intentionally or unintentionally, FIs and their alliances can misrepresent or overstate the effectiveness of their approaches in contributing to climate action. This misrepresentation can be exacerbated by the use of misleading metrics or strategies, such as selling or legally spinning off high-emitting assets or using offsets in net-zero pathways. FIs should communicate clearly and accurately about their climate-related pledges and commitments, including whether their goal is to contribute to climate action or to mitigate their own financial risk and how their business strategies will be aligned to achieve those goals. FIs should ensure that targets, metrics, and methodologies are aligned with their goals and business strategies and do not misrepresent the effectiveness of their strategies. FIs’ commitments and strategies are shaped by their financial interests and their interpretation of their fiduciary and other legal duties and obligations; because of perceived tensions between legal obligations and certain climate-oriented strategies, FIs and their alliances should provide clear, public explanations of how their interpreted fiduciary and other legal duties shape their climate-related strategies. Part 2 of this report proposes how financial institutions can and should contribute to, and not undermine, climate goals, under current policy conditions. While many of these actions are relevant for a risk-mitigating approach for FIs and their alliances, these recommendations go beyond risk mitigation in order to guide those FIs and their beneficiaries that seek to have real climate impact.
Topic:
Climate Change, Investment, Sustainability, Financial Institutions, and Financial Systems
Political Geography:
Global Focus

3. Costs and Benefits of Investment Treaties: Practical Considerations for States

Author:
Lisa Sachs, Lise Johnson, Brooke Güven, and Jesse Coleman
Publication Date:
03-2018
Content Type:
Working Paper
Institution:
Columbia Center on Sustainable Investment
Abstract:
This paper analyzes the expected benefits of investment treaties, including: increased inward investment, increased outward investment, and depoliticization of investment disputes. It then considers evidence of the costs of investment treaties, including: litigation, liability, reputational cost, reduced policy space, distorted power dynamics, reduced role for domestic law-making, and uncertainty in the law. The authors set forth practical steps that states can take relating to both existing treaties as well as future treaties with an objective of increasing desired benefits and decreasing unexpected and high costs of investment treaties.
Topic:
Treaties and Agreements, Law, Legal Theory, and Investment
Political Geography:
Global Focus

4. Clearing the Path: Withdrawal of Consent and Termination as Next Steps for Reforming International Investment Law

Author:
Lise Johnson, Lisa Sachs, Brooke Güven, and Jesse Coleman
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Columbia Center on Sustainable Investment
Abstract:
This is a crucial moment in international investment policymaking. Two factors have converged, calling for a new direction. First, it has become increasingly difficult to justify investor-state dispute settlement (ISDS); even governments that had been among its strongest proponents are now changing course and have raised a range of fundamental, systemic and inter-related issues relating to ISDS. Second, policy makers and other stakeholders have a greater awareness of the need to design appropriate policies to maximize the contributions cross-border investment can make to sustainable development. Influenced by these factors, various reform efforts related to investment policy are underway at the national, regional, and international levels. These discussions about reform are likely to be slow, and outcomes uncertain. In the meantime, governments and their stakeholders remain tied to an outdated system that is widely acknowledged to be ill-suited for modern investment policy objectives, with increasingly concerning consequences. This policy paper explores two near-term options that governments engaged in reform discussions can pursue, alongside longer-term work on substantive and procedural reform. These options are: (1) a joint instrument on withdrawal of consent to arbitrate; and/or (2) a joint instrument on termination. The paper examines how both options could be implemented, and makes the case for putting a pause on ISDS to ensure that investment treaties and their dispute settlement mechanisms achieve their desired ends, produce legitimate decisions, and do not undermine international economic cooperation and sustainable development more broadly.
Topic:
International Cooperation, Regional Cooperation, Governance, Reform, Policy Implementation, and Investment
Political Geography:
Global Focus