18 November 2021
Much has been written about the outcomes of COP26, and with good reason. Debate will continue on what COP did and didn’t deliver, but we shouldn’t underestimate the impact of countries committing to increase their ambition on climate action within the next 12 months. Likewise the significance of new provisions on the phasing down of coal, the rule book for carbon markets, a global goal on adaptation, higher levels of climate finance, and the beginnings of finance for losses and damage from climate change.
“COP26 may be over, but make no mistake its impact is just beginning and a large part will rest in the ripple effect of activity beyond the headline announcements.”
Emma Cox, global climate leader at PwC
It’s also worth reflecting on other significant developments beyond the headline negotiations, and what they mean for business. The sectoral focus at COP26 was a significant break from the norm. Forty two countries supported the launch of the Glasgow Breakthroughs, which aims to make clean technologies and sustainable solutions the most affordable, accessible and attractive option in major emitting sectors (power, road transport, steel and hydrogen) globally before 2030. The UK Government is also currently working to develop consensus amongst interested countries on the Breakthrough goal and associated metrics for the agriculture sector. Separately, the UNFCCC High-Level Champions had launched the 2030 Sector Breakthroughs as part of their Race to Zero campaign to engage business action. This provided fertile ground for the emergence of a series of public-private partnerships and for building critical mass to drive sectoral transformation at an exponential rate.
A myriad of private and public-private commitments were announced over the two weeks covering themes from energy and finance, to oceans, deforestation and land use, to transport, adaptation and cities. As part of the Race to Zero campaign, nearly 8,000 non-state actors - including businesses, regions, financial, educational and healthcare institutions - have committed to halving emissions by 2030 and net zero by no later than 2050. Under the Glasgow Finance Alliance for Net Zero, 450 financial institutions responsible for $130 trillion AUM, committed to align their funding with net zero by 2050 and set near-term science-based targets aligned with 1.5°C. The test of time will be how these parallel worlds - the real economy and the UN process - co-exist in a positively reinforcing manner and push each other to raise and deliver on their commitments.
As these commitments from businesses and investors came flooding in, there was a rising sentiment of ‘greenwashing’ and a growing concern on the credibility of the announcements being made. In a positive move , several new bodies were established to instill transparency and accountability in the system including:
The UNSG Expert Working Group: to assess the credibility of non-state actor net zero commitments; and
The International Sustainability Standards Board: to drive greater coherence in climate disclosure/ESG reporting.
COP26 provided a platform for showcasing how all parts of the global system including investors, businesses, cities and subnational regions are beginning to converge around the urgency of increased ambition and action. And to stand any chance of keeping 1.5°C alive, it will need all of these parties and more to deliver. For business there are a number of key takeaways, specifically the need to:
Define net zero strategy,with bold science-based net zero targets and a strategic blueprint for how to compete in a net zero world.
Seize opportunities and manage risks of net zero transition. A net zero world will open huge new commercial opportunities and chances to build shareholder value. On the risk side, climate change is already here. Businesses should assess and build resilience to risks such as supply chain disruption, reputational damage, and stranded assets.
Prepare for scrutiny. With stakeholders increasingly wary of 'greenwashing' and growing convergence on consistent global climate standards and regulation, companies should be ready for greater transparency and tougher accountability.
Manage changing priorities of capital. With $130tn of assets under management now committed to align to a 1.5°C world, net zero performance - judged on a clear net zero strategy, credible ESG reporting, and good climate governance - will increasingly affect businesses’ access to and deployment of capital.
Be prepared for a bumpy ride. Climate standards, policy, regulation, technology, consumer demand, and more will rapidly evolve. Business must be ready to adapt fast using a range of skills across risk, finance, sustainability, tax, legal, strategy, and assurance.