Two Weeks in Glasgow: What We Learned from COP26
On November 13th COP26, the annual United Nations Climate Change Conference, ended proceedings. The two-week summit was composed of talks aimed at cutting global greenhouse gas emissions and slowing the Earth’s warming. It was the first conference since COP21 – when the Paris agreement was negotiated – at which the 200 attending countries were asked to reveal commitments to mitigate climate change.
We are currently in what is widely regarded as the decisive decade to stave off the worst of climate change’s effects, and a major goal of this conference was to keep the world on track for the 1.5 degrees of warming target established at Paris. Unfortunately, the current national pledges and commitments are not enough to keep the earth on track for 1.5 degrees, and there will have to be complementary private sector action. Various initiatives were revealed in Glasgow, and there were few key highlights over the course of the summit.
Commitments are Plentiful
The first week resulted in a pledge, signed by more than 130 countries including Brazil, Russia and the US, to end deforestation by 2030. Additionally, 28 countries agreed to prevent deforestation for goods like palm oil, soy, and cocoa, and more than 30 companies pledged to end financing of commodity-driven deforestation. This is a commitment to keep in mind as companies examine the environmental impacts of their value chains.
The US also released a policy, coinciding with the US-EU global methane pledge, to curb methane emissions from oil and gas operations. Another 21 countries agreed to halt financing of overseas fossil fuel projects. Instead, roughly $15 billion will be diverted to clean energy projects annually. Though not a complete pivot away from fossil fuels, many commitments from Glasgow place focus on funding a clean energy economy.
Investors and Regulators: All Stick, No Carrot
Additionally, week one saw major climate commitments from the private sector. Mark Carney announced the Glasgow Financial Alliance for Net Zero, or GFANZ. GFANZ represents 450 firms and $130 trillion in assets—about 40% of global assets under management. Signatories must commit to using science-based targets to reach net-zero emissions by 2050 and set interim 2030 goals. Carney promises participants will be strictly monitored to ensure compliance. This is critical for companies held by member firms, as they are at significant risk for divestment if they do not have the proper commitments in place.
Carney and his co-chair, Michael Bloomberg, published an OpEd alongside this announcement. They emphasized the importance of the private sector in combating climate change and called for coinciding action from governments, such as setting consistent sustainability standards, establishing a carbon tax and mandating disclosures in line with the TCFD. Combined with the anticipated SEC regulation on climate risk disclosure it is more important than ever that public companies align with an accepted sustainability standard and take proactive steps towards monitoring and disclosing climate risks.
The Next Decade
The focus of week two was negotiations over the Glasgow Climate Pact. It states that carbon emissions will have to fall by 45% by 2030 to maintain the 1.5 degree goal. Notable provisions include language supporting a phase-down of coal power, new rules for trading carbon credits across borders, a call for nations to return to COP27 in 2022 with new, more ambitious targets, and a request for a yearly report summarizing nations’ annual commitments to reduce emissions.
Notably, late in the conference China and the US announced a joint agreement to do more to cut emissions this decade. (Though, President Biden had previously announced a desire to set a target of reducing U.S. GHG emissions by 50% based on 2005 levels.) For the first time, China committed to develop a plan to reduce methane. This agreement between the world’s two biggest polluters lent some additional credibility to the climate pact. Though language is still vague in terms of implementation, pledges like these point towards a future regulatory environment where carbon accounting and disclosure is critical.
Conferences like this often lead to a flurry of new pledges and commitments. It is in the aftermath where progress is made. COP26, more than any before it, underscored the importance of public-private cooperation in implementing ambitious climate goals. The convergence of COP26 and anticipated SEC climate risk rules means that climate disclosures are quickly becoming both expected and required. It’s important for business leaders to understand the demands that this will provide on the business in terms of collecting, verifying, and reporting related data. It’s also important for business leaders to see this as an opportunity, not an inconvenience. Effective environmental management and ESG reporting opens companies up to more investors, a stronger talent pipeline, more engaged employees, happier customers, and much more. To understand how to set your company up for success—especially in a changing investment and regulatory environment—reach out to us.Back To Blog