The much-awaited COP26 has left complex climate developments in its wake. Where does your business stand in the outcome?
The goal of this UN climate change conference was to secure the commitment of world leaders to limiting global warming to 1.5 degrees Celsius and achieving net-zero emissions by 2050. While the meeting was only moderately successful at achieving this goal, the private sector will likely play a key role in mobilizing finances and executing climate change strategies.
Following COP26, many organizations worldwide have adopted net-zero goals and are collaborating with governments to initiate urgent climate action. Stakeholders, including consumers, investors, and governments, are demanding no less.
Here are some key takeaways from COP26 that could guide your business to respond effectively to the urgency of climate change, lead climate action, and contribute to a sustainable future.
1. COP-26 Triggered National Policy Changes
Leaders from nearly 200 countries committed to varying net-zero timelines at COP26, resulting in the Glasgow Climate Pact. Governments across the world strengthened their resolve to limit global warming to 1.5 degree Celsius, hoping to return with stronger emission targets in 2022.
However, there was no global consensus on the best path for climate action. Hence, following COP26, governments will be seen initiating a new wave of climate regulations that will differ based on country, region, jurisdiction, and industry of operation.
As you look for strategies to ground your organization in a new climate reality, paying close attention to both national and global regulations is a must.
Regulations will vary drastically between the developed and developing world. Following COP26, developed countries like the U.S., Canada, and Switzerland, among others, committed to contributing to the Adaptation Fund that raised US$ 356 million to help vulnerable communities adapt and build resilience to climate change. Additionally, many countries including Italy, Germany, Spain, and France committed to mobilizing $100 billion in climate finance each year.
Developing countries, however, withheld accelerated climate action commitments, looking instead to attract investments from their developed counterparts to address climate change. For instance, India committed to reach net-zero by 2070 and is likely to depend on climate finance to achieve its delayed goal. It chose to set smaller achievable goals like pledging to install 500 Gigawatts of non-fossil fuel electricity and use renewable energy to generate 50% of the country’s energy capacity.
In addition to net-zero, regulations around methane emissions, forest loss, and fossil fuels may shift to reflect national climate action plans. By the end of COP26, 151 countries had submitted updated climate plans. Called Nationally Determined Contributions (NDCs), these plans are submitted every five years to account for changing economic trends and the latest advances in science and technology. These plans are great resources you can use to determine the future direction of a country’s regulations and assess how your business can prepare for upcoming environmental compliance obligations.
2. As the Private Sector Leads on Climate Action, it’s a Good Time to Examine Your ESG Performance and Goals
At COP26, U.S. Special Presidential Envoy for Climate Change John Kerry recognized the private sector’s involvement at the forefront of climate action as an exciting development that can accelerate the journey to net-zero. As organizations recognize the urgency of climate change and begin to lead the way for governments to follow, it’s an excellent time for your business to demonstrate genuine care for the environment with climate action.
Several countries submitted ambitious climate plans at COP26, but plans from major emitters like Australia, Saudi Arabia, China, Russia, and Brazil fell short of public expectations. With countries challenged to align their economic goals with net-zero strategies, organizations can step up to the challenge, collaborate with governments, and create innovative solutions that can drive meaningful climate action.
Consider, for instance, the First Movers Coalition launched by the World Economic Forum (WEF) and Special Envoy for Climate Change John Kerry at COP26. The coalition is a group of forward-thinking companies that have joined forces to use their global purchasing power to create demand and mobilize investments for emerging clean technologies that can accelerate the journey to net-zero. The aim is to target carbon-intensive sectors like aviation, trucking, steel, and shipping and decarbonize them with the assistance of emerging technologies.
Making similar commitments, organizations in the construction sector signed the Net Zero Carbon Buildings Commitment to decarbonize building activities. Other sectors such as aviation have their own climate change programs.
Parallel to initiatives like these, there has been an unmistakable shift in the flow of global finance and capital. Investors are holding companies accountable for their Environmental, Social, and Governance (ESG) performance and increasingly favoring companies that commit to and demonstrate progress on the sustainability front. In this new era, companies need to take a hard look at their environmental impact, their climate goals, and their ability to make good on ESG commitments.
3. Global Finance Will Be Directed Toward Sustainable Organizations
At COP26, about 40% of global financial assets were aligned with net-zero goals. At the Glasgow Financial Alliance for Net Zero, about 500 global financial service firms made impactful commitments, agreeing to align $130 trillion with net-zero climate goals to limit global warming to 1.5 degrees Celsius.
Mark Carney, the UN Special Envoy for Climate Action and Finance, discussed these financial commitments, urging companies to prepare their climate action plans: “Companies that have plans in place to reduce the emissions will find the capital; those who don’t won’t.”
Pressured by a coalition of investment firms following COP26, HSBC announced its plan to cease financing coal projects from 2040. HSBC further said it expects to provide its corporate customers decarbonization support worth between $750 billion and $3 trillion. Other financial institutions are likely to follow suit, with some having joined the Powering Past Coal Alliance (PPCA) that aims to accelerate fossil-fuel phase out.
With these trends, global finances will increasingly be directed toward organizations that report investment-grade sustainability metrics. Additionally, COP26 will set in motion increased Mergers & Acquisitions activities, with investors beginning to divest high-carbon assets and opting to acquire greener technologies for their own organizations.
If your organization is innovating on the front lines of climate action, you’ll likely find it easy to access capital. For instance, the Global Innovation Lab for Climate Finance mobilizes finance from the private sector to support promising ideas that deliver on climate change and sustainable development. The lab has raised $3 billion for 49 innovative solutions to date.
Additionally, businesses in any sector will be eligible for loans if they meet and publicly declare defined green objectives. With capital available for organizations driving climate action, it’s a great time for your organization to play a role in helping achieve net-zero.
If your business can deliver direct and positive environmental impact, financial support is now at your disposal. To ensure your ESG program drives and sustains progress, you’ll need to define your sustainability targets, establish a digital framework and processes for collecting investment-grade ESG data across the enterprise, and begin to create a culture of sustainability in your organization.
4. Reporting ESG Metrics Is Key to Responsible Business Practices
The International Financial Reporting Standards (IFRS) Foundation Trustee Chair Erkki Liikanen announced the formation of the International Sustainability Standards Board (ISSB) in the first week of COP26. The ISSB will begin to develop a reliable and comparable global baseline of high-quality sustainability disclosure standards.
In the recent past, Environmental, Social, and Governance (ESG) reporting has been making waves in global investor communities. According to John Rogers, Founder of the Sustainability Accounting Standards Board (SASB), ISSB will accelerate the alignment of global markets on a standard approach to ESG while accommodating the nuances and perspectives of various jurisdictions and countries.
Regardless of your country or jurisdiction, reporting accurate sustainability data will become increasingly important if you want to take meaningful action, advance your climate goals, and satisfy customer, investor, and government demands. Now is the time to ask yourself some fundamental questions:
- Are you confident in the quality and relevance of the data your organization is sharing?
- Is your data aligned with the right reporting standards?
- Are you equipped with adequate reporting capabilities in a world that will compare your organization to peers based on sustainability metrics?
As global sustainability metrics become more standardized and demands for ESG disclosure surge, proactive organizations will start defining their ESG priorities and choosing relevant frameworks to report their metrics. The time for your organization to begin this process is now.
To Respond to the Urgency of Climate Change and Meet Emerging Stakeholder Demands, You Must Embrace ESG
If there’s one thing, we’ve learned from COP26, the private sector is set to take the lead in the fight against climate change. Great power comes with great responsibility: corporations must act urgently, collaborate and create value by embracing sustainability, communicate their efforts to stakeholders, and procure critical climate finance to advance their goals.
Climate strategies, ESG disclosure and data management, and the global reporting landscape can be difficult to navigate on your own. Whether you’re just beginning your sustainability journey or you’re looking to drive meaningful ESG gains, join us at the ESG Executive Collaboration Forum on December 8 to hear from experts and connect with peers to learn how they’ve overcome common ESG challenges.
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8
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2021
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