Imagine a tug of war. If public dollars pull towards a healthy planet but private dollars stay stuck in the status quo – where do we end up? Climate success requires that every dollar pulls in the same direction. We are not seeing this consistency. At COP27 this November in Sharm El-Sheikh, Egypt, a call to action to shift all capital for climate came into the spotlight.

The background sounds obscure, but the resulting solution is straightforward and powerful.

Article 2.1(C) of the Paris Agreement has significant implications for how the global financial system works and will be a centrepiece of the coming years. It calls for countries to make all “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” In other words, it calls for both private and public dollars to align with climate action. 

The first priority following the 2015 Paris Agreement was to clean up public financing, so Article 2.1(C) was less of a focus. A Loss & Damage fund was agreed upon at COP27 to support the countries most vulnerable to climate damage, and countries such as Canada committed to end subsidies to international fossil fuel projects. There is still much more to do, but public dollars have started to shift. This means the private sector needs to catch up.

At COP27, countries agreed to quickly drive forward progress on Article 2.1(C) to make “finance flows consistent” with climate action. For example, Canada’s Minister of the Environment, Steven Guilbeault, recently said “you have my commitment and the commitment of my government that we will be advancing on this in 2023”. The COP27 final political text called for two workshops on the subject during 2023, which is at least a big spark for advancing the conversation. 

The financial system is off track when it comes to climate action. The world’s largest banks have funded over $4-trillion into fossil fuel projects since the Paris Agreement. Global stock markets hold three-times the amount of carbon we can emit to keep warming below 1.5-degrees. And investments in protecting and restoring nature are only half as much as they need to be.


Finance must stop flowing to projects that worsen climate change and instead shift into solutions. Capital has useful places to flow but is not going there on its own. Global South countries require about $5-trillion between now and 2030 to modernize their economies to be in line with climate safety. Clean energy investments should total $3-to-4-trillion annually, according to the International Energy Agency. 

Many private finance institutions have voluntarily made promises to shift towards climate success. This suggests progress, but the corresponding action remains insufficient. Most Canadian investors consider Environment, Social and Governance (ESG) factors in their portfolios, but it is primarily guided by minimizing risk rather than advancing positive climate outcomes. Investments that target a deliberate positive impact are only $1-trillion globally.

Aligning finance with 1.5C is a lofty ambition but it is more practicable than it sounds. Various groups have done the hard work to translate the scientific and economic conclusions into action plans for investors, lenders, and corporations. A UN-affiliated group (known as the HLEG) released recommendations at COP27 that defined “red lines” for financial institutions to align with climate action. These red lines include halving emissions by 2030 and not investing in any new oil, gas, or coal expansion. Environmental Defence and partners at Ecojustice and Shift: Action outlined similar conclusions in defining a “Credible Climate Plan”. Our Roadmap to a Sustainable Financial System details precisely how the Canadian government can hold institutions accountable to the required actions.

The Kunming-Montreal framework for biodiversity, from the biodiversity COP15, moves in the same direction as Article 2.1(C) of the Paris Agreement. It calls on governments to set conditions that make sure business and finance “progressively reduce negative impacts on biodiversity, [and] increase positive impacts”.

Implementing Article 2.1(C) means that each country must set and enforce rules for its financial actors to move in the right direction for climate action. Voluntary promises show initial momentum but it is time to ensure all finance is consistent with low emissions and climate resilience. Countries regulate their financial sectors but have glaring gaps when it comes to guiding how finance is affected by and can contribute to climate change. Countries like Canada must expand existing financial regulations to cover climate consistency.

One thing is clear: to make financial flows consistent with climate action, countries must make progress in their own jurisdictions. This means setting new rules to ensure financial actors align with global climate goals. Canada has talked about requiring financial disclosures on climate risk but must make progress on alignment. Canadian Ministers Wilkinson and Guilbeault recently said that “nothing is off the table”, and “we are looking at regulating when we need to.” The renewed global interest in Article 2.1(C) shows that now is the time.