Decarbonisation, Debt and the Deadline: Private debt and the net-zero target
Following the last United Nations Climate Change Conference in 2022, governments and businesses worldwide have reacted to the urgent call to accelerate the pace of climate action. In particular, governments and businesses have made further commitments to reduce greenhouse gas (GHG) emissions, and many large corporations have publicly declared their intention to achieve net-zero emissions by 2050. In our view, the decarbonisation of our economy has therefore become a global imperative.
To limit global warming to 1.5°C with zero or limited overshoot, we collectively need to reduce GHG emissions by 43% by 2030, 69% by 2040 and 84% by 2050, compared to a 2019 baseline. Global net-zero CO2 emissions need to be reached in the early 2050s. As a result, we must emphasise that we are in a pivotal decade for taking sufficient action to have a chance of reaching this common objective. Unfortunately, the race to net-zero at global, national, sector and local levels is delivering incremental progress, and recent estimates suggest we are all falling short of achieving the Paris Agreement targets. According to the Argus-BCG 2023 Mid-market Climate Transition Barometer, only 11% of mid-market companies declare having “strongly invested” to abate their GHG emissions based on a detailed climate strategy built beforehand (consisting of a detailed carbon footprint and a decarbonisation roadmap).
Our view is that there is no way to reach the net-zero target without strong and coordinated action on corporate emission reduction worldwide. The success of a decarbonisation strategy heavily relies on external stakeholders, as the Scope 3 emissions of one company are linked to the Scope 1 & Scope 2 emissions of another. We believe that the financial sector, which is jointly responsible for GHG emissions and the ecological impacts of these activities, can trigger and coordinate global action to ensure that capital is allocated in ways that help meet these objectives.
This paper therefore explores the case for deploying private market investment, specifically private debt capital, to support the vital contribution of companies in making meaningful and timely GHG reductions at scale.
