For better or worse, COP26 has wrapped up with the “Glasgow Climate Pact” signed by 197 participating parties.
Many say it didn’t go far enough. Naysayers of climate change claim it went too far.
No matter on what side you fall, one could argue that businesses, investors, and financial markets were the real movers and shakers of the conference. From the get-go, they championed concrete actions to transform the economy to adhere to the Paris Agreement. These initiatives include establishing an International Sustainability Standards Board; a huge financial commitment by GFANZ; and the launch of the First Movers Coalition.
But first, here are five basic highlights of the Pact:
1) Phase down, rather than out.
The first week of negotiations brought the exciting potential of a phase-out of coal and fossil fuel subsidies. This marked the first time that fossil fuels have been mentioned in a United Nations text about climate change since the Kyoto Protocol in 1997.
When it came time to put this into writing, however, there was pushback.
“How can anyone expect that developing countries can make promises about phasing out coal and fossil fuel subsidies when developing countries have still to deal with their development agendas and poverty eradication?” said Bhupender Yadav, India’s environment and climate minister.
Hence the language in the final document was changed to a “phase down of unabated coal power,” instead of phase out. A huge disappointment for many.
2) Rules to create a framework for a global carbon market were approved, settling a problem that had plagued negotiators since 2015. These rules allow the trading of carbon credits across country borders.
3) Developing countries asked developed countries to contribute financially to their adaptation of greener technologies, and to increase pledges for a “loss and damage” fund created by climate change due to prior activities of developed countries.
The Adaptation Fund saw a record US$ 356 million in new pledges at COP26, including some from first-time countries such as the United States and Canada. The amount, however, still fell short of what the UN predicts is needed.
According to the press release, “Step up climate change adaptation or face serious human and economic damage,” annual adaptation costs in developing countries are estimated at USD 70 billion. This figure is expected to reach USD 140-300 billion in 2030 and USD 280-500 billion in 2050.”
4) Participating countries agreed to accelerate their decarbonization plans. In fact, they pledged to strengthen their emissions-reduction targets for 2030 by next year, rather than wait until 2025, as was established under the Paris agreement. The group plans to return in 2022 with more ambitious targets.
5) And if acknowledgments mean anything, all the participating countries formally recognized that there is a pressing need to reduce global greenhouse-gas emissions by 45% by 2030 in order to meet the Paris Agreement goal of 1.5°C.
Now let’s look at the rest of the story.
An International Sustainability Standards Board is Born
Long has there been a demand to streamline and formalize corporate sustainability reports. According to the IFRS, the ISSB’s mission is “to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.”
The IFRS Foundation also plans to consolidate the Climate Disclosure Standard Board (CDSB) and the Value Reporting Foundation (VRF houses the Integrated Reporting Framework and the SASB Standards) by June 2022.
In addition, it promises to publish prototype climate and general disclosure requirements that were developed by the IFRS’s Technical Readiness Working Group (TRWG). The TRWG developed these protocols by consolidating key aspects of established international accounting organizations i.e. the CDSB, the International Accounting Standards Board (IASB), and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), into a unified set of recommendations for the ISSB.
With these moves, the IFRS hopes to establish a global sustainability disclosure standard for the financial markets by next April.
Backing Up Words with Financial Support
The largest financial commitment towards climate change came from the Glasgow Financial Alliance for Net Zero, or GFANZ, spearheaded by former Bank of England Governor Mark Carney. The group committed more than $130 trillion of private capital to transform the environment through the economy.
GFANZ claims that this money, from more than 450 firms across 45 countries, and representing 40% of the world’s total financial assets, can deliver the estimated $100 trillion of finance needed for net zero over the next three decades.
Members are required to transition their portfolios to be in line with the 1.5C-degree goal of the Paris Agreement.
To support proper deployment of the capital, GFANZ introduced 24 major initiatives at COP26. The group hopes these will “transform the financial architecture by mainstreaming and scaling: climate-related reporting; climate risk management; climate-related investment returns; and the mobilization of private finance to emerging and developing economies.”
More than 90 of the founding institutions of GFANZ have already delivered on setting short-term targets, including 29 asset owners that have committed to reducing portfolio emissions by 25-30% by 2025. Forty-three asset managers published targets for 2030 or sooner.
First to the Starting Gate
Many tout the benefits of being an early adopter. To capitalize on this, the World Economic Forum (WEF), along with U.S. Special Presidential Envoy for Climate Change, John Kerry, formed the First Movers Coalition, “a new platform for companies to harness their purchasing power and supply chains to create early markets for innovative clean energy technologies that are key for tackling the climate crisis.”
The aim is to create demand for low-carbon approaches for steel, cement, aluminum, chemicals, shipping, aviation, and trucking. In addition, it plans to support the commercialization of direct air capture technologies.
This initiative represents more than 30 big corporations such as Airbus, Amazon, Apple, Bank of America, Boeing, Cemex, DHL Group, Engie, Fortescue Metals Group, Holcim, Johnson Controls, Mahindra Group, Nokia, Ørsted, Vattenfall, Volvo, and Yara International; and accounts for more than $8 trillion in market capitalization.
Heather Clancy, from GreenBiz, quoted Special Envoy John Kerry in her article, “These big corporations are pledging to accelerate purchases of climate tech,” as saying: “I’m not kidding you when I say that this is one of the more exciting things and important things that is happening at COP…The private sector is at the table and is leading in a way that governments are not.”
In part 2 of this recap, we will examine several specific business initiatives that hope to transform the environment.