Five themes for 2025
Theme 3: The sovereignty of climate
This series explores the five themes we expect to top the sustainability agenda in 2025. For the third theme, we examine whether the latest data about climate impact will push governments to aspire to more ambitious targets.
In February, signatories to the Paris Agreement will conclude the updates to their climate action plans, known as nationally determined contributions (NDCs). The question is whether the new targets will be ambitious enough.
In November 2024, the Network for Greening the Financial System (NGFS), a group of central banks and financial supervisors, published the fifth phase of its long-term climate scenarios.1 Since the publication of the fourth phase in 2023, temperature estimates of all scenarios have risen 0.1-0.2°C. Assuming current policies, estimated losses from physical risks by 2050 have risen from 5.4% to 14.8% of global GDP (see chart).
Unfortunately, at a time when urgent action is needed, the process of creating new action plans is beset by lagging effects. The latest NDC updates are based on the “global stocktake” concluded in late 2023, which the NGFS study suggests may already be out of date. There will not be another stocktake of this kind until 2028. Current pledges and targets suggest that, in the absence of greater climate action and ambition, the earth is headed for a 1.9-2.1°C range by the end of this century.2
Estimated losses from chronic physical risks by 2050 in Phase IV and Phase V scenarios (% of global GDP)
Source: Network for Greening the Financial System, 5th vintage scenarios
Against this backdrop, the US has confirmed plans for a second withdrawal from the Paris Agreement. The move is unsurprising, but the climate context is very different to the first withdrawal in 2017. The proposed oil and gas expansion, higher tariffs and reversal of Inflation Reduction Act initiatives could lead to economic headwinds. Stopping support for clean energy could undermine the energy security President Donald Trump seeks. As a result, it may be that economic realities trump Mr Trump’s current policies. But the longer these policy headwinds last, the more likely a delayed transition scenario plays out, and every 0.1oC temperature increase counts.
In September 2023, there was an estimated USD 6.2 trillion annual climate financing gap.3 The NGFS report suggests this sum has since increased. Sovereigns have a vital role to play in climate policy, in adaptation and mitigation, and in directing the scale and style of bond issuance that will support the transition. Sovereigns need to step up in 2025, even without the US to lead the way.
- Read the second post in this series: Theme 2: The big moment of truth
- Read an overview of our five themes: Sustainable investing in 2025: five themes to watch
1 NGFS long-term climate scenarios - Phase V - High level overview
2 Temperatures | Climate Action Tracker
3 How big is the Net Zero financing gap?
