Post Covid-19 stimulus and bailouts need to be compatible with the Paris Agreement

Covid-19 recovery efforts via public and private finance should not support assets and companies that are incompatible with the Paris Agreement. Yet even before the current crisis, there was a lack of agreement about what investor portfolio or bank loan book alignment with climate change outcomes actually means, and what assets are (in)compatible with different carbon budgets and global warming thresholds. We need to clarify this urgently and embed it within decision-making frameworks. Assessing (in)compatibility with a warming threshold should take account of carbon lock-in. We also need to develop appropriate confidence levels for measuring (in)compatibility. The state of (in)compatibility changes under different circumstances and targets for alignment should be set in a way that explicitly acknowledges these uncertainties. A portfolio with a lower confidence level would be less desirable than one with the same level of alignment and a higher level of confidence.

Automated summary

Efforts to recover from Covid-19 through public and private finance should not support assets and companies that are not in line with the goals of the Paris Agreement. However, there is a lack of agreement on what it means for investor portfolios or bank loan books to be aligned with climate change outcomes, as well as what assets are compatible or incompatible with different carbon budgets and global warming thresholds. It is important to urgently clarify and incorporate these considerations into decision-making frameworks.