COP26 reflections – implications for businesses

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THE world is at a critical point in the fight against climate change, and COP26 was considered the most significant climate talks since the 2015 Paris Agreement. During the conference, there were notable successes and some setbacks. Both have implications for businesses, globally.

It now feels a suitable time to reflect on the progress made during the climate-change conference and provide insights on how to help accelerate towards net zero, together.

Key takeaways

o COP26 made progress towards delivering on the Paris Agreement goals of limiting global warming to ‘well below’ 2˚C on pre-industrial levels, but the world is definitely not on track to limit the increase to 1.5˚C on the basis of plans submitted to date.

o In a scenario where all the climate pledges announced to date were met in full and on time, then the International Energy Agency estimates that global warming could be kept to 1.8˚C. However, the lack of firm plans for 2030 means the actual increase could be 2.4˚C.

o These commitments must be delivered upon if these temperature goals are to be achieved. This still represents progress since Paris, where the world was heading for 3˚C-4˚C of warming, and COP26 should be seen as part of that ongoing process that started nearly 30 years ago and now plans to continue indefinitely to tackle climate change.

o Over that period, there has been a marked shift from ‘top-down’ reliance on governments taking the lead to ‘bottom up’ action by businesses, investors, NGOs and consumers.

o COP26 has energised a raft of initiatives including:

o The Glasgow Financial Alliance for Net Zero.

o The Glasgow Breakthroughs on technology innovation.

o Powering Past Coal and shifting to clean power.

o Nearly 100 countries committing to cutting methane emissions.

o A commitment to end and reverse deforestation by 2030.

o H2Zero – a pledge to accelerate use of decarbonised hydrogen.

o A new requirement for net-zero transition plans for listed companies in the UK.

o Establishing a new International Sustainability Standards Board globally.

– Good progress was made on Article 6 — the rulebook for carbon accounting.

– But there were also a number of setbacks:

o The US$100 billion per year climate finance target — due by 2020 — was delayed to 2023.

o Many of the new net-zero targets announced have limited detail on near-term plans to help reduce emissions, which is essential if we are to have a chance at limiting global warming to 1.5˚C.

o Questions remain regarding the follow-through and implementation, with the final call to action requesting all parties to update their Nationally Determined Contributions ahead of the next COP in November 2022.

– It is becoming increasingly clear that the institutional investment world is starting to exercise real influence through investment policy and is starting to demand increased climate focus from investee companies. Importantly, these investors are focused on private companies as much as public companies.

– The shift to net zero is the next great industrial revolution and businesses that seize the opportunity are expected to thrive. Those that don’t, may not.

Implications for businesses

COP26 has been termed the Business and Finance COP, because of the more prominent role the business and finance community has taken compared to previous conferences.

The scrutiny of plans on decarbonisation is only going to grow from both investors and from consumers. This is especially true in the UK, which had already made climate risk disclosures mandatory for large companies from 2022, and for all companies by 2025. In addition, they have now added a new requirement for listed companies to produce net-zero transition plans by 2023.

Globally, the International Sustainability Standards Board is now tasked with coming up with global reporting standards with a focus on carbon emissions.

The reality? These changes are coming and businesses should be prepared. If you already have a credible, quantified plan for emissions reductions, then great; if you don’t, you should begin to consider one as soon as possible.

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