Beyond UN conference on climate change (COP26): An Action Plan for CEOs

Brief

• Senior executives may expect tougher rules, increased expectations for climate-related financial disclosures, and increased scrutiny from investors and customers following the 26th Meeting of the Parties, a UN conference on climate change.
• Many corporations have stated ambitious targets to cut their emissions, some to zero, but just a few are making significant headway in putting those plans into effect.
• Making the carbon transition a strategic priority, finding ways to monetize carbon reduction efforts, integrating the transition into the business, and involving middle management are four strategies that can help.

The biggest problem of our day is managing and mitigating climate change, and the 26th UN Conference of the Parties in Glasgow, Scotland better known as COP26 represents a watershed moment in the world’s efforts to take concerted action.

Nations will assess progress on previous commitments, including their Nationally Determined Contributions (commitments to reduce emissions and adapt to climate change) and the goal of mobilizing $100 billion per year to help developing countries adapt to climate change, in early November, six years after the landmark Paris Agreement. Countries will continue to work to settle basic regulatory difficulties, such as Article 6 of the Partial Agreement on Tariffs and Trade. Countries will continue to work to overcome basic regulatory challenges, such as Article 6 of the Paris Agreement, which aims to stimulate voluntary cooperation in the implementation of NDCs and is crucial for the development of carbon pricing and markets.

While policy work continues, many top executives of firms will be wondering, “What do we do after COP26?”

Preparing for a significant acceleration is maybe the most critical measure they can take. Changes will very probably accelerate in places where they were already occurring before COP26, such as:

• Regulations. Carbon taxes and emissions trading schemes, which will cover 21.5 percent of global greenhouse gas (GHG) emissions in 2021, will likely expand, and the price of carbon (which is already above €60 per ton of CO2 equivalent in the European Union’s Emissions Trading System) will likely continue to rise.
• Financial disclosure is required. Companies will be required to report on their climate risks to a greater extent. Pension funds, banks, insurers, and other premium-list corporations in the United Kingdom are already required to comply with the Task Force on Climate-related Financial Disclosures’ framework. The International Financial Reporting Standards Foundation is setting the framework for a set of common reporting standards on a global scale, while the Securities and Exchange Commission of the United States has asked for public input on climate change disclosures.
• Targets that are based on science. The Science Based Targets Initiative (SBTi), which has seen yearly growth of 130 percent in the number of participating corporations over the last five years, is quickly becoming the gold standard for setting aggressive decarbonization targets as more companies set goals to cut emissions. Companies’ targets are becoming more comprehensive, including Scope 3 emissions where they account for at least 40% of total emissions. They’re also more aggressive, with SBTi adopting only Scope 1 and 2 targets in line with the Paris Agreement’s goal of limiting global warming below 1.5 degrees Celsius. With tighter definitions of net-zero carbon emissions and sector-specific standards, targets are becoming more precise.

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Source: Bain & Company

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