The stakes could not be greater for the massive climate summit taking place in Glasgow this week.
The 26th United Nations Climate Change Conference (COP26) marks the observed five-year mark since the signing of the Paris Agreement, a global promise to limit warming to well below 2 degrees Celsius, compared to pre-industrial levels. The agreement states that it would prefer a more stringent 1.5 degrees Celsius target.
Climate policy expert Sergey Paltsev said the world is not making progress fast enough on that goal.
“We are nowhere near where we need to be to get to 1.5,” Paltsev told Yahoo Finance at its All Markets Summit on Monday.
The UN estimates that by 2030, the world would have to reduce its carbon emissions by 29 to 32 gigatons to limit global warming to 1.5 degrees Celsius. But Paltsev said the pledges and policies of each participating country are not enough to close even a 12 gigaton emissions gap.
Paltsev, who runs the Massachusetts Institute of Technology’s Joint Program on the Science and Policy of Global Change, said attention may have to turn to dealing with the consequences of overshooting that goal.
“We need to make sure that we convey that we are not going to lose all the battles. Every emission counts,” Paltsev said. He will be speaking about the outlook on energy and climate at COP26.
The role for financial regulators
Financial regulators are turning their attention to the physical climate risks (i.e. wildfires and hurricanes) in addition to transition risks (i.e. disruption that could come from transitioning away from oil and gas industries).
In the U.S., a report from a coalition of financial regulators released ahead of the COP26 details recommended increased data collections and better corporate disclosures to assess climate-related financial risks in the private sector.
The U.S. Securities and Exchange Commission (SEC), for example, is already working on some standardized approach to how public companies report greenhouse gas emissions. SEC Chair Gary Gensler told Yahoo Finance Monday that staff are working to bring transparency to disclosures soon.
“If a company says ‘we’re going to be committed by 2030 or 2050 to make certain adjustments to our greenhouse gas emissions,’ each year how are they doing and managing towards that transition plan? How are they adjusting that transition plan?”
Paltsev points to another tool recommended in the report: scenario analysis. Regulators are discussing the idea of using hypothetical scenarios to test the resiliency of a company to withstand physical or transition climate risks.
“When they put in a lot of resources to evaluate that, I would see that, yes indeed, we are serious. It’s not just cheap talk, but there’s action as well,” Paltsev said.
The COP26 will take place between Oct. 31 and Nov. 12.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.