Nationally Determined Contributions (NDCs) are the cornerstone of the Paris Agreement, adopted at COP21 in 2015. They represent each country’s self-defined plan to reduce greenhouse gas (GHG) emissions and adapt to the impacts of climate change. Investors and policy advocates now call for "investable NDCs", clear, detailed, and credible pathways that can guide capital allocation.
NDCs and COP21
David Pitt-Watson, former UNEP FI Co-Chair during the lead-up to COP21, reflected on the evolution of finance’s role in climate negotiations. He traced this from the early Kyoto Principles through to the landmark Paris Agreement. David highlighted how UNEP FI positioned itself as a constructive “dealmaker” ahead of COP21, pushing negotiators to be ambitious while providing clarity and tools (like green bonds and reporting frameworks) to attract investors. Bringing the conversation to the present, he underlined the critical role of the real economy and the need for credible, investment-grade policy signals.
Making NDCs Investible
Arianna Griffa, Senior Policy Manager at the IIGCC, presented the IIGCC’s report on Making NDCs Investible. Representing over 400 members with over $60 trillion in assets, the IIGCC explored whether NDCs could serve as useful tools for investors. The consensus was that while they offer valuable signals of long-term direction, challenges remain, namely around data quality, granularity, and policy consistency.
Key Findings from the IIGCC Report:
- Granularity matters – high-level targets are insufficient. For instance, China recently became the first country to announce decarbonisation strategies for all sectors.
- Credibility comes from coherence – public fiscal support, regulatory roadmaps, and implementation plans are key to making NDCs actionable.
The UK’s NDC was cited as the only one currently aligned with a 1.5°C pathway, according to Climate Action Tracker.
Are NDCs useful for finance?
The group wrestled with whether NDCs provide enough clarity or consistency to serve as meaningful tools for investors. Key points included:
- Drivers of decarbonisation targets were debated, with some questioning whether they stem from genuine national commitment or external pressure.
- Sovereign bonds were discussed as natural entry points for engaging with NDCs, though some felt this could shift over time.
- Despite ESG pushback in some markets, there is a growing cohort of investors committed to implementation and engagement.
- NDCs were seen as valuable inputs for scenario planning, even if not yet central to investment decision-making.
Investor-Government Engagement
There was broad agreement that constructive engagement with governments is necessary, but this should be clearly distinguished from lobbying. Partnerships were seen as essential for shaping realistic and investible transition plans.
One standout suggestion was the development of a scorecard to rank the quality and credibility of NDCs, helping investors better assess risk and opportunity.
Fiduciary Duty and Risk
Tensions were raised between fiduciary duty and climate outcomes. Some questioned whether the current framing of fiduciary responsibility allows enough space for climate-aligned investing. The discussion highlighted a need for more honest conversations about active risk-taking, especially when passive strategies are unlikely to deliver long-term value in a transitioning economy.
The example of Hungary’s green bond issuance to electrify its railway network showed how well-structured deals can align financial and environmental outcomes.
Geopolitical Headwinds
David reflected on how the diplomatic groundwork ahead of COP21, especially the US-China deal, set the stage for consensus. In contrast, today’s geopolitical uncertainty is hampering ambition. There was concern that early climate leaders like Colombia have been penalised by markets for bold transition plans, underlining the need for market stability and clear frameworks.
The Role of the Financial Sector
The session closed with reflections on what finance can do to accelerate progress:
- Collaborative engagement was deemed more effective than individual action.
- Silence is complicity, retreating from public engagement isn’t neutral, it slows progress.
- Central banks and incentives, participants called for stronger incentives, similar to the US IRA’s tax credits, to channel private capital into climate-aligned investments.
Conclusion
There was broad agreement that while NDCs are imperfect, they remain one of the few tools linking government ambition with investor decision-making. To bridge the gap, investors need:
- Clear, sector-specific policy roadmaps
- Granular and credible data
- Consistent regulatory frameworks
- Mechanisms to engage constructively with sovereigns
Perhaps most importantly, they need the courage to take active risks, aligned with values and value.