ISFCOE Research Insights Monthly Digest: February 2025
Welcome to the latest edition of the ISFCOE Research Insights Monthly Digest, where we bring you key international research updates in sustainable finance. The International Sustainable Finance Centre of Excellence (ISFCOE) continues to drive innovative financial mechanisms that align with Ireland’s National Sustainable Finance Strategy, providing expert insights to shape public discourse and policy.
This month, we explore the global financing gap for sustainable development, new approaches to road safety financing, and regulatory updates from the EU Commission’s Omnibus proposal. Our Sustainable Finance News Roundup highlights major international developments, including UK aid budget cuts, American banks withdrawing from the Net Zero Banking Alliance, and the latest UN climate finance updates.
Let’s dive into this month’s insights.
Global Outlook on Financing for Sustainable Development 2025
The Global Outlook on Financing for Sustainable Development 2025 calls for an urgent overhaul of the financial system to meet the Sustainable Development Goals (SDGs) by 2030. Despite commitments made a decade ago in Addis Ababa, the gap between actual funds mobilised and the trillions required has widened significantly. Without major reforms, the financing shortfall could reach $6.4 trillion by 2030.
Key Findings:
- 36% increase in estimated financing needs (2015-2022), largely due to climate change.
- 22% growth in available funding over the same period, reaching $5.24 trillion in 2022.
- A projected $6.4 trillion financing gap by 2030 without significant structural reforms.
Policy Recommendations for Governments:
- Place developing nations at the centre of global finance reform.
- Prioritise the quality of financing, not just the quantity.
- Align all financial flows with the SDGs.
- Rebuild trust through stronger monitoring of financial commitments.
Financing Road Safety: Catalyzing the Sustainable Finance Market to Bridge the Gap
Global Road Safety Facility (GRSF) and the World Bank Treasury have published a groundbreaking new report. This report provides practical guidance to governments on how to access innovative financial instruments to mobilize private capital for essential road safety projects.The Funding Challenge:
- The financial gap to halve road crash fatalities by 2030 is estimated at $400 billion.
- Traditional funding models are insufficient to meet this challenge.
The Role of Sustainable Finance:
The new report highlights the potential of “labeled” sustainable finance instruments—such as green, social, sustainability, and sustainability-linked bonds and loans—to help close the funding gap. By linking road safety initiatives with investors’ environmental, social, and governance (ESG) priorities, these financial instruments can unlock private capital for critical road safety programs. The report serves as a practical guide for governments, multilateral development banks (MDBs), and the private sector, outlining how these instruments can be effectively structured and deployed to maximize impact.
Understanding the EU Omnibus Update: Corporate Sustainability Rule Changes
The European Commission has released its much-anticipated proposal to streamline and simplify corporate sustainability rules. The Omnibus package introduces significant changes to the scope, timelines, and other compliance aspects of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. The Carbon Border Adjustment Mechanism (CBAM), the EU’s carbon border tax, is also part of the regulatory overhaul.
The simplification is part of efforts by the EU to increase European competitiveness and decrease regulatory complexity and compliance burdens. According to the Commission, the Omnibus package will make sustainability reporting more effective and efficient, simplify due diligence for responsible business practices, and unlock opportunities in European investment programs.
If approved by the European Parliament and Council and transposed into national laws, the Omnibus will profoundly change the EU’s sustainability regulatory ecosystem. The most important changes include the following:
Key Changes:
- Companies will get more time to prepare to comply: For most companies, CSRD, EU Taxonomy, and CSDDD compliance timelines will be extended.
- The number of companies required to do mandatory reporting will shrink significantly: The CSRD will cover 80 percent fewer companies than intended in the original directive. The scope of mandatory EU Taxonomy reporting and number of companies affected by CBAM will also be significantly reduced.
- Companies will be required to report fewer data points: The EU Omnibus will substantially reduce the number of data points for CSRD reporting, making data requirements clearer and more comparable. EU Taxonomy data points will be reduced by two-thirds.
- Supply chain due diligence will be more focused: Companies covered by CSDDD will have diminished capacity to request information from smaller direct suppliers and will not be required to scrutinize indirect suppliers unless there are clear indications of harm.
- Assurance requirements and enforcement mechanisms will be weakened: The proposal removes the plans for the Commission to elevate the limited assurance requirement for CSRD reporting to reasonable assurance. Meanwhile, CSDDD reduces litigation exposure for companies, especially related to suppliers working on corrective action plans.
- Role of voluntary reporting may become more prominent: Companies left outside the revised scope of CSRD and EU Taxonomy are encouraged to turn to voluntary reporting, with the Commission planning to publish a simplified standard.
- Smaller companies will be protected from excessive reporting demands: The proposal introduces a “value-chain cap” to ensure that small and medium-sized companies are spared the burden of excessive reporting and shielded from information requests from larger companies that fall within compliance scope.
– SUSTAINABLE FINANCE NEWS ROUNDUP
UK aid budget cuts threaten climate finance pledge to vulnerable nations, experts warn
Top American banks exit net zero alliance: What does this mean for their European peers?
Major US and Canadian banks have abandoned an industry-led climate alliance aimed at aligning net zero targets with global goals. Before Trump signed the order to exit the Paris Agreement, six of the biggest banks in North America pulled out of the Net Zero Banking Alliance (NZBA). Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo all announced that they would be leaving the coalition in December 2024 and early January. In late January, a number of Canadian banks followed their US counterparts. Five of the country’s top banks – TD Bank, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce and Scotiabank – also left the alliance. These departures have left many questions about the future of banking’s climate ambitions. While 135 financial institutions remain in the alliance – including all of Europe’s major banks – it’s unclear how it will now move forward. Despite the departure of their American peers, European banks appear to still be backing the NZBA. Several have already declared their intention to remain committed to the industry coalition.
UN Climate Chief Says Energy Transition ‘Unstoppable’ Despite US Exit From Paris Accord, Urges Countries to Deliver on Climate Finance at COP30
Simon Stiell, executive secretary of the UN Framework Convention on Climate Change, said countries were “already stepping into their place to “reap the massive rewards” of transitioning to cleaner forms of energy, such as new jobs, reduced pollution and associated health costs, economic growth, and more affordable energy. Stiell outlined his top policy priorities for this year and for COP30, the UN annual climate summit, set to take place in November in Belem, Brazil. Stiell said the world has mobilized around $2 trillion in climate finance from “nearly nothing” over the last decade. “Imagine if we could get finance right; as a start, deliver on the Baku to Belém Roadmap to 1.3 trillion dollars – so that every nation can begin reaching its full potential,” he said.
The USAID Funding Freeze Deals a Major Blow to Climate Finance
The US Agency for International Development (USAID) has long been a cornerstone of international development assistance. On January 20, amid a flurry of executive orders, the agency’s status as the largest bilateral donor in the world was abruptly revoked via a 90-day funding freeze. USAID’s future now hangs in the balance. The ripple effects of this measure have already been profound. The agency was forced to cease all activities and issue stop-work orders to nearly all funding recipients. USAID websites have gone completely dark, employees have been locked out of their email accounts and barred from accessing their offices. The Trump administration has already begun to cancel hundreds of contracts and grants, leaving people around the world uncertain about the future. As the main vehicle for US foreign development assistance, USAID is a major provider of climate-related funding. In 2024 alone, the agency allocated close to half a billion dollarsto climate programs directed towards clean energy, sustainable landscapes and climate adaptation. Key programs that played a vital role in mitigation and adaptation have gone dark, and threaten to be completely shut down as investigations into the agency’s efficiency are conducted.
Among the programs affected is SERVIR, which helps countries predict weather-related threats like droughts or flooding via satellite data. In 1991, a catastrophic Category 5 cyclone struck Bangladesh, killing 138,000 people. In contrast, when a Category 4 cyclone developed in the same area in 2023, SERVIR’s early-warning system alerted people of the imminent danger, giving them enough time to take shelter. This time, only 145 people lost their lives.
US pulls back from gold-standard scientific climate panel
The Trump administration prevented NASA’s chief scientist from travelling to climate talks where she was to co-chair a working group. A major United Nations climate assessment is moving forwards in China this week without the United States, after the administration of President Donald Trumpblocked US officials’ participation and shut down a team providing technical support for the next international climate assessment. Reports emerged last week that the Trump administration had banned NASA chief scientist Katherine Calvin from attending a planning meeting of the Intergovernmental Panel on Climate Change (IPCC) that took place in Hangzhou, China. Nature has now confirmed with several sources that the US State Department delegation is not attending the meeting, which is slated to end with the adoption of an outline for the panel’s seventh climate assessment, due for completion by late 2029. The IPCC assessments, which are the gold-standard guide to the pace and effects of climate change, are used by governments to shape their climate policies. NASA has also cancelled a contract that funded a team including scientists and others to provide administrative and technical support to the climate-assessment effort, says a US official who is familiar with the situation but asked not to be named because they are not authorised to speak to the press.
