Will corporates stick to the 1.5°C goal?

2024 is on track to be the hottest year on record as warming was temporarily hitting 1.5°C and also brought a somewhat changed landscape for the climate targets set among the member countries of the UN in the Paris Agreement. Trump’s second term is likely to slow down emission reductions, and it is expected that the US will withdraw from the agreement. Argentina has also announced that they are reconsidering their participation. The COP29 summit ended in late November without any further details on how countries should transition away from fossil fuels. 

At Nordea, we’re monitoring the development as we work closely with our customers to help them accelerate their sustainable transition. We’ve met Anja Hannerz, Head of Group Sustainability, and ESG experts Matti Kahra and Thina Saltvedt to learn how corporates should understand and react to recent events on the global scene. 

Matti Kahra: “It’s important to remember that there are many drivers of the sustainable transition. If we look at the Nordic energy transition alone, it’s actually progressing on track or even faster than expected. So the transition outlook for the Nordics overall is still very much the same as previously. But then of course there is the global question of whether the 1.5°C limit will be breached and the impacts of global warming. The transition might happen slower, but the physical risks will be higher.”

“Now the big question globally is if 1.5°C is not doable, then what? That’s what countries are asking themselves. With Trump in office, the next four years will be more critical, but we also have to remember that most countries and companies have their targets set for 2050. So we have to look beyond his election period and there are also market forces pulling in another direction.”

Increased focus on adaptation and resilience

According to the three experts, the global uncertainty related to the ESG factors may impact the support our customers will need over the coming years.

Anja Hannerz: “If the transition is not making progress, we will see more focus on financing adaptation to, rather than mitigation of, climate changes. Adaptation finance is when we focus on building resilience against physical climate-related events, for instance to ensure that we can stay in our houses and prevent areas where we live from being flooded.”

“Adaptation finance is more about anticipating the adverse effects of climate change, exploring new business models or even creating new value streams that didn’t exist before. We want to support our customers in balancing transition and physical risks. We want to ensure that they can continue their operations but also develop long term towards more sustainable, resilient business models.”   

Thina Saltvedt: “Leaving the 1.5°C scenario can be a slippery slope as just going from 1.5°C to 1.6°C will increase the risks and probably future costs. We are seeing sea levels rising and more flooding that are now also impacting infrastructure, for example railway systems and road transport.   

Matti Kahra: “That’s true, but that there are also pockets of progress where things are actually happening faster than expected within the 1.5°C scenario. There is the development within the energy sector and electric vehicles in the Nordic countries and the whole energy transition, which is encouraging as it’s on a fast track with new business opportunities arising.”

Anja Hannerz: “There are many aspects of energy transition that are relevant to all of us. In relation to our personal customers, we also need to prepare them for what climate change actually means in practice in terms of for example energy supply and price shocks. We want to keep them informed about what measures they can take to become more resilient and keep their personal finances safe.”

We stand by our customers in their transition

Summarised, the Nordea experts highlight both positive and negative signs in the world around us and acknowledge that there is a lot more work ahead to progress in the transition. 

Thina Saltvedt: “It’s possible to be profitable and sustainable at the same time even though we might see political currents that are advocating the opposite. It’s a fact that during Trump’s first term, investments in the energy transition in the US more than doubled according to figures from Bloomberg NEF, so there are trends going in different directions. There are companies driving the transition and taking ownership for the development.”

Anja Hannerz: “Yes, but we can’t leave it to the customers to drive the transition alone. The financial sector needs to be at the forefront and part of the solution. At Nordea, we stick to our commitment and will keep supporting our customers in their transition. We might see things slow down, but I think we need to remember that every transition starts with a first step. The end goal might not be the same for everyone, but that doesn’t mean that the first steps are less important. We now need to get even more companies started to create a positive impact on the real economy.”