The COP21 Paris Agreement is not legally binding yet but does offer an outline of the path ahead. It has set ambitious targets to combat climate change and, whilst the precise route to meeting these targets isn’t yet certain, in order to achieve the Agreement’s objectives it is clear that significant finance will be needed in a range of areas, including technology investment, disaster planning and insurance.

In our recent post, we highlighted that the total of intended nationally determined contributions (INDCs) submitted was less than half of that required to meet the 2ºC reduction target for mitigating climate change.

The Paris Agreement , signed by all 195 parties, stated a target of 2°C but with the addition of a supplementary target of 1.5°C.  Whilst the INDCs don’t meet either target, a lower target does suggest a political appetite to support and finance increased investment in combating climate change.

Loss and Damage

The Agreement included an article dealing with the issue of loss and damage from climate change and this is a positive step. It adopted the Warsaw International Mechanism for Loss and Damage, and stressed that the signatories to the Agreement must work towards supporting measures to mitigate and adapt to risk through, amongst other strategies, greater investment in preparedness for the effects of climate change and insurance solutions.

Finance for developing countries

The Agreement targets financing of $100 billion per year to developing countries to adapt to, and mitigate the effects of, climate change. Whilst undoubtedly a positive ambition, there is significant uncertainty as to when and how this money is going to be provided.

Not yet legally binding

The Agreement will not be legally binding until it has been ratified by at least 55 countries representing 55% of global greenhouse gas emissions. This means that, for now, the UK government isn’t restrained by the Agreement in its policy options in addressing climate change. However, the government is still subject to the legally enforceable EU target for 2030 and it appears clear that further investment in impact mitigation and low carbon technologies will be needed to meet these targets.

What does this mean for the finance and low carbon technology industries?

Whilst the Agreement does not have the precision that many hoped for on key issues such as the provision of finance to developing countries and adoption of low carbon technologies globally, it is a step in the right direction. Furthermore, as the parties provide details on how they intend to meet their obligations under the Agreement, there should be significant investment opportunities on the horizon even before the Agreement becomes legally binding.