COP26 ran from 31st October to 12th November and aimed to build on the Paris agreement of COP21, with countries and other organisations having an opportunity to update plans and commitments for reducing emissions with the aim of limiting global warming to 1.5 degrees. This COP is particularly important, not just due to the UK’s COP Presidency, but also as the impacts of climate change have begun to be felt across the world rather than limited to certain areas. The civil and corporate movements against climate change have gathered momentum, and this is the first COP which can truly be said to be front-page news.
Last week we welcomed Dr Ben Caldecott and senior business leaders, from across many sectors, to join us and discuss the key takeaways from COP26, especially as they relate to finance. Dr Caldecott has, for the last two years, been working with the UK Cabinet Office as the COP26 Strategy Advisor for Finance and is one of the most-credentialled experts in the field of sustainable finance.
Here are five key take-aways from this discussion, which looked at the impacts of COP negotiations and what it means for businesses and the global economy.
- There is still reason to be optimistic, but that must not impact our sense of urgency.
COP26 clearly took place in difficult circumstances. The geopolitical landscape and continued impact of COVID-19 mean that a significant achievement was managing to host an in-person event in Glasgow. Moreover, it was crucial to COP’s success that it was in person, due to the large number of negotiations that were allowed to take place.
There were key achievements made which mark a real and positive impact in the fight against climate change, including:
- 90% of global greenhouse gas emissions are now covered by net-zero emissions pledges. If countries meet their long-term net zero pledges, global warming will be reduced to around 1.8 degrees (with a confidence interval of 1.4 to 2.6 degrees).
- The Paris Rulebook, which provides guidelines for delivering the Paris Agreement, was completed after six years of discussions.
- The Glasgow Climate Pact had wide-reaching climate commitments around deforestation emissions and energy, despite a last-minute word change on coal reduction.
- Large countries who have not had net zero commitments before are now included, including India. Although their net zero commitment is for 2070 rather than 2050, it is still a starting point.
Although not all goals were achieved, for example the failure to reach $100 billion annual climate finance to less wealthy nations, there are plenty of reasons to be optimistic.
However, this optimism must not allow us to accept delayed action. The fact that even after a largely successful COP we are still some way from achieving the 1.5 degree limit to global warming demonstrates that more is required, and we can’t afford to take our foot off the gas. Due to long periods of inaction, there is a requirement for a much-accelerated transition.
- The business and finance communities were part of COP in a way they haven’t been before.
COP26 was a blend between financial and corporate organisations, and the political world, in a way which it hasn’t been before. Climate change is no longer seen as a fringe issue, and the business and finance communities are accepting that their organisations must act sustainably more and more. Furthermore, the business representatives attending COP26 were often the most senior representatives of their organisations, which shows the strategic importance that climate change now has.
However, there are large corporates are still making Capex decisions which are incompatible with their transitory requirements for 2030. Although many are waking up to the urgency of the situation, this pace has to be accelerated to avoid issues such as stranded assets, and to act quickly enough to achieve our global climate aims.
- There is increasing interest in integrity of commitments and quality of transition plans.
In the years since COP21, nations, and then the business and finance communities, have made net zero commitments. However, action has been slow, and the emphasis should now be on the plans that underpin those commitments. The Government is moving to make transition plans mandatory, beginning with asset managers, regulated asset owners and listed companies, on a comply or explain basis. This will be incorporated into the UK’s Sustainability Disclosure Requirements by 2023.
Furthermore, a high-level Transition Plan Taskforce will develop a robust standard for transition plans to avoid greenwashing. Business and finance will be held to account on sustainability issues in a way which they haven’t been before.
- Data is key.
COP26 has shone a heightened sense of importance on data and disclosures. This is important as data allows us to understand what we are currently doing to mitigate climate change, and how we can do better. The increasing demand for data from investors and the general public is driven by a desire to be able to have an open conversation about the efforts that companies are making and the risks to investors, and to encourage change where necessary.
The UK was the first country to commit to making climate reporting aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) mandatory. However, although it is important to better understand climate-related financial information, this level of data still doesn’t allow for accurate comparison of organisations. Increasing understanding of data is key, and can be assisted by current technologies such as satellite imaging of climate change impacts.
- Working against climate change requires a just transition. Plurilateral agreements and partnerships are key in ensuring this happens.
At COP26 there was an increasing understanding of how climate change is one of a number of connected issues. Furthermore, there has been a better understanding of the negative impacts which some countries are suffering in trying to fight climate change. There is therefore increased demand for a just transition. As part of the just transition, the pain points of adjustment need to be better understood, particularly for developing countries. Structural adjustments require a joined up approach to be successful. For that reason, plurilateral agreements such as the International Just Energy Transition Partnership for South Africa are likely to become increasingly important.
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