The world is at a critical point in the fight against climate change, and COP26 has been highly anticipated as a turning point for action from governments and the private sector. Now, after two weeks of panel discussions and negotiations, COP26 has come to an end. The conference was filled with pledges that governments will now implement in their home countries, and commitments from the private sector to transition to a net-zero economy. Below are some of the key takeaways we believe businesses should be aware of.
Net-Zero Plans (not Pledges) will drive Competitive Advantage
One thing that became clear over the course of COP26, was that while more and more companies continue to announce pledges to reach net-zero, few have detailed plans for how they will achieve these goals. Leaders who put convincing and detailed net-zero plans in place can distinguish their company from the competition, as investors and customers now demand more than just pledges.
Preparing high-quality plans takes time, and businesses must start now if they have not done so yet. Every company’s net-zero plan will differ, but there are certain elements that all well-formed plans will contain: emission targets for Scopes 1, 2 and 3, an assessment of the company’s starting baseline, an assessment on the capital that will be required to reduce emissions, and a strategic view of climate-related risks and opportunities for each part of the company’s portfolio.
It Is Not Just Carbon / Emissions Counting
While there is a welcome momentum to calculating emissions, there is also increasing awareness that this is not enough. The clear sequitur is … what do you do after you measure? The obvious answer is … we mitigate and reduce. But the “how” is less obvious. Equally, companies are beginning to understand that, from an ESG perspective, all elements of the business are connected. Beyond the calculating and reporting of emissions, there is a clear need to consider, and implement effective systems and strategies around waste and single-use-plastic management, supply chain assessment and low carbon procurement, circular design principles and sustainability matters pertaining to activities in the community. All are interrelated and form the broader ESG tapestry that progressive companies are now considering. (Disclosure: Future Planet delivers AI software to enable businesses tackle up to 30 different ESG Materiality Issues)
The Money To Finance The Transition Is There
Transitioning the entire economy to net-zero will be expensive, but the money to finance it is forming. Businesses are now more engaged than ever before in tackling climate change and continued to show this engagement at COP26. The Glasgow Financial Alliance for Net Zero (GFANZ) brought together more than 450 institutions, representing $130 trillion of financial assets, that promised to align their portfolios with net-zero goals. The alliance’s banks, insurers, asset managers, and asset owners have committed to implementing guidelines by 2030 to reach net-zero by 2050. While some questions remain about how these assets expect to be mobilised in practice, it is now clear that clean finance can now play a critical role in driving change irrespective of changes in government policy.
Compliance Regulations are Growing (Fast)
On November 2nd, Finance Chancellor Rishi Sunak announced plans to see the UK commit to becoming the world’s first net-zero aligned financial centre. While that is laudable, the measurement, mitigation and reporting overhead will be significant for businesses that do not have a proactive strategy in place in 2022.
Under the newly announced plans, large companies and financial institutions will be required to submit public plans on how they plan to achieve emission targets and decarbonise. Regarding what exactly this means for financial institutions based in London, Mr Sunak said it would be mandatory “for firms to publish a clear, deliverable plan setting out how they will decarbonise and transition to net-zero with an independent task force”.
The task force is due to report at the end of 2022, and once standards are developed, it is expected firms will be required to start publishing transition plans in 2023. Developing a large corporation’s transition plan can be a lengthy process, which often takes longer than a company expects. Given this, companies who will be subject to these new requirements should consider beginning developing their transition plan now if they have not done so already.
One of the most significant outcomes of COP26 for businesses was the International Finance Reporting Standards Foundation’s formal announcement of a group that will be tasked with establishing standards for comparable sustainability discolours. The International Sustainability Standards Board (ISSB) will work to create a baseline that will allow investors to assess companies based on common financial and sustainability performance standards, building on and incorporating initiatives like the Task Force for Climate-related Disclosures (TCFD).
With the ISSB announcement in mind and all the pledges that came from COP26, one thing is for sure, that companies will be asked to disclose more information about their exposures to climate risks and their climate action plans going forward. Of course, this transition to net-zero will be time-consuming and complicated. Still, it is clear from investors and customers’ demands that the companies which begin their transitions now and deliver upon their goals will be rewarded.
Contact us here for information on how Future Planet can help you assess your business’ sustainability starting point and enable your transition to a sustainable future.