Editing IPCC:AR6/WGII/Chapter-18 (section)

==== 18.4.2.5 Monitoring and Evaluation Frameworks ====

<div id="h3-15-siblings" class="h3-siblings"></div>

Enabling system transitions towards CRD is dependent in part on the ability to monitor and evaluate system transitions and broader development pathways to identify effective interventions and barriers to their implementation ( ''very high confidence'' ). However, the monitoring and evaluation of individual system transitions, much less CRD, remains highly challenging for multiple reasons ( [[#Persson--2019|Persson, 2019]] ). The highly contextual nature of resilience, adaptation and sustainable development means that, unlike climate mitigation, it is difficult to define universal metrics or targets for adaptation and resilience ( [[#Pringle--2018|Pringle and Leiter, 2018]] ); ( [[#Brooks--2014|Brooks et al., 2014]] ). This is demonstrated by the Paris Agreement’s global goal for adaptation, The mismatch between timescales associated with resilience and adaptation interventions and those over which the results of such interventions are expected to become apparent tends to result in a focus on the measurement of spending, outputs and short-term outcomes, rather than longer-term impacts ( [[#Brooks--2014|Brooks et al., 2014]] ; [[#Pringle--2018|Pringle and Leiter, 2018]] ). The need to assess resilience and adaptation against a background of evolving climate hazards, and to link resilience and adaptation with development outcomes, present further methodological challenges ( ''very high confidence'' ) ( [[#Brooks--2014|Brooks et al., 2014]] ).

Currently, the ability to monitor different components of CRD are in various stages of maturity ( ''very high confidence'' ). Monitoring of the SDGs, for example, is a routine established practice at global and regional levels, and UNDP publishes annual updates on progress towards the SDGs ( [[#United%20Nations--2021|]] [[#United%20Nations--2021|United Nations, 2021]] ). For resilience, [[#Brooks--2014|Brooks et al. (2014)]] identify three broad approaches to its measurement, each of which could offer potential mechanisms for monitoring progress towards CRD. One is a ‘hazards’ approach, in which resilience is described in terms of the magnitude of a particular hazard that can be accommodated by a system, useful in contexts where thresholds in climate and related parameters can be identified and linked with adverse impacts on human populations, infrastructure and other systems ( [[#Naylor--2020|Naylor et al., 2020]] ). An ‘impacts’ approach is one in which resilience is measured in terms of actual or avoided impacts and is suited for tracking adaptation success in delivering CRD over longer timescales, for example at the national level ( [[#Brooks--2014|Brooks et al., 2014]] ). Finally, a ‘systems’ approach is one where resilience is described in terms of the characteristics of a system using quantitative or qualitative indicators which are often associated with different ‘dimensions’ of resilience ( [[#Serfilippi--2018|Serfilippi and Ramnath, 2018]] ; [[#Saja--2019|Saja et al., 2019]] ). This allows measurement of key indicators that are proxies for resilience at regular intervals, even in the absence of significant climate hazards and associated disruptions ( ''very high confidence'' ) ( [[#Brooks--2014|Brooks et al., 2014]] ) (see also Cross-Chapter Box ADAPT in Chapter 1). Similar criteria could be applied to evaluating adaptation options and their implementation as well as various interventions in pursuit of SDGs.

<div id="box-18.6" class="h2-container box-container"></div>

'''Box 18.6 | ‘Green’ Strategies of Institutional Investors'''
<div id="h2-28-siblings" class="h2-siblings"></div>

'''''Negative and Positive Screening''''' '''.''' Investors assess the carbon footprint of issuers and identify the best and worst performers ( [[#Boermans--2019|Boermans and Galema, 2019]] ). The issuers with excessive carbon footprint are divested and fall into the ‘exclusion lists’ (negative screening). Alternatively, the investors commit to pick only the best in class (positive screening). As a bare minimum, screening approaches force more transparent environmental reporting from issuers. In the most optimistic scenario, to avoid exclusion lists issuers may progressively divest their non-green operations. In the long term, the combination of positive and negative screening will reward sustainable issuers relative to non-green sectors, thus reducing the cost of capital for less polluting entities.

'''''Active Ownership.''''' Equity investors can exercise the voting rights at shareholders’ meetings in relation to governance and business strategy, including the environmental performance. In addition, institutional investors engage with the management and the boards of directors of investee companies. Active ownership is therefore defined as the full exercise of the rights that accrue to the ‘owners’ of the securities issued by companies ( [[#Dimson--2015|Dimson et al., 2015]] ; [[#Dimson--2020|Dimson et al., 2020]] ). Active owners are entitled to question and challenge the robustness of financial analyses and the risk assessment behind strategic decisions including the environmental footprint ones. For instance, since fossil fuel businesses face the prospect of dramatic business decline ( [[#Ansar--2013|Ansar et al., 2013]] ) and must revisit their business model to survive, active ownership by institutional investors may foster the transition to cleaner production and supply chain. Companies more exposed to carbon risks particularly need the active support of long-term shareholders. In turn, investors adopting an active ownership approach can manage their holdings’ exposure to climate change risks, thus protecting the value of their investments on a long-term horizon (Krueger et al., 2019).

'''''Specialized Financial Instruments and Investors''''' ''.'' New asset classes have been created to address the climate change challenge. Also, specialised investment funds and vehicles came to life with the primary objective of addressing climate issues. While these financial instruments and funds prioritise the achievement of climate objectives, they do not sacrifice financial returns and are able to attract private capital. To mention a few examples:

* ''Green bonds'' are typically issued by companies, banks, municipalities and governments with the commitment to use the proceeds exclusively to finance or refinance green projects, assets or business activities. These bonds are equivalent to any other bond issued by the same entity except for the label of ‘greenness’ that ideally is verified ''ex ante'' at the launch and ''ex post'' when the proceeds are actually used by the issuer. Early evidence show that green bonds do not penalise financially issuers ( [[#Gianfrate--2019|Gianfrate and Peri, 2019]] ; [[#Flammer--2020|Flammer, 2020]] ).
* ''Carbon funds'' are designed to help countries achieve long-term sustainability typically financing forest conservation. They are intended to reduce climate change impacts from forest loss and degradation.
* ''Project finance.'' New renewable energy initiatives are likely to recur more and more to project finance. Project finance relies on the creation of a special purpose vehicle (SPV), which is legally and commercially self-contained and serves only to run the renewable energy project. The SPV is financed without (or very limited) guarantees from the sponsors (typically energy companies: investors are therefore paid back on the basis only of SPV’s future cash flows only and cannot recourse on the sponsors’ assets) ( [[#Steffen--2018|Steffen, 2018]] ).
* ''Cleantech venture capital'' . These funds invest exclusively in early-stage companies working on innovative, but not yet fully tested, clean technologies. The risk profile of such investments is usually very high. The extent to which this segment of the financial industry can successfully support ‘deep’ energy innovations is still debated ( [[#Gaddy--2017|Gaddy et al., 2017]] ). When cleantech start-ups develop hardware requiring a high upfront investment, support from the public sector seems necessary to attract further investments from large corporations and patient institutional investors.
* ''Crowdfunding and alternative finance'' are emerging as a channel to both finance small-scale clean energy projects as well as fund early-stage innovative clean technologies ( [[#Cumming--2017|Cumming et al., 2017]] ; [[#Bento--2019|Bento et al., 2019]] ).

<div id="18.4.3" class="h2-container"></div>

<span id="arenas-of-engagement"></span>