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Sustainable Finance Initiative is a cross-campus effort of the Precourt Institute for Energy.


Pathways Versus Incentives: Climate Activism to Climate Outcomes

Climate activists have pressured financial institutions to accelerate global decarbonization by aligning portfolios with Paris Agreement transition pathways and targets. We trace the progression from IPCC scenarios to corporate target setting via the Science-Based Targets Initiative (SBTi) and financial institutions’ portfolio alignment methods. We identify four critical weaknesses: flawed GHG Protocol emissions counting rather than accounting, reliance on centrally-planned pathways, implicit divestment-driven approaches, and tension with fiduciary duties. These issues undermine the theory of change behind activist and financial sector efforts. As an alternative, we propose Emissions Liability Management (ELM) which treats emissions as liabilities matched by removal assets, enabling firms to maintain emissions solvency. Rather than chasing pathways, ELM provides incentives for emissions reductions and removals consistent with shareholder obligations. By reframing climate action in financial terms, ELM can engage financial markets as agents of change.

Marc Roston
Julien Maire
Alicia Seiger
Thomas Heller
Sustainable Finance Initiative
Publication Date
November, 2023