COP26

“Our addiction to fossil fuels is pushing humanity to thebrink. We face a stark choice: either we stop it — or it stops us. It’s time tosay, enough. Enough of burning and drilling and mining our way deeper. We aredigging our own graves.”

U.N. Secretary-General Antonio Guterres 1 November 2021

Over the last three decades, the United Nations has brought nearly every country on the planet together for global climate summits known as the Conference of Parties (COP). The COP is the highest decision making body for climate action, where country representatives discuss, deliberate, and negotiate climate related mechanisms, instruments, and actions. The United Nations Climate Change Conference of 2021, also known as COP26, was the 26th such conference held in Glasgow, Scotland, United Kingdom, between 30 October to12 November 2021.

The UN Environment Programme’s (UNEP) Emissions Gap Report2021: The Heat is On, released prior to COP26, noted an increase in the numberof countries pledging net-zero commitments around 2050. Despite the spike, experts believed that the commitments lacked a clear pathway.

Studies indicate that only 20% of companies from G20countries plan to follow the Science Based Targets initiative (SBTi)i to reduce their emissions in line with 1.5 degrees warming, with less than 6% of companies from G7 countries. The lack of science-based targets in the global industry is causing concern among investors. As per the CDP, in 2021, 220 financiers with a total of $29 trillion in assets under management have asked1600 companies for science-based targets ahead of COP26ii .

Anticipating the global importance and magnitude of COP26,ESG Book’s Climate Change team has kept track of the progress made by this global geo-political summit. This report is a culmination of three phases of research undertaken voluntarily by the Climate Change data team (Refer toFigure 1).

Figure 1: Climate Change team COP research phases

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Outcomes of COP26: Country-level Initiatives

Almost 200 countries participated in COP26. A few significant country level initiatives are detailed in the table below:

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• The World Bank committed to spending $25 billionin climate finance annually to 2025 through its Climate Action Plan, includinga focus on agriculture and food systems.
• Some countries including Saudi Arabia havepledged to reach net zero carbon emissions by 2060.
• Brazil also made an announcement to reduce GHGemissions by 37 per cent from 2005 levels by 2025 and (indicatively) 43 percent from 2005 levels by 2030.
• Canada has committed of reducing emissions 40–45per cent below 2005 levels by 2030.
• China has committed to reduce CO2 emissionbefore 2030, reduce CO2/GDP by 65 per cent from 2005 levels by 2030, increasethe share of non-fossil fuels in primary energy consumption to around 25 percent by 2030, increase forest stock volume by around 6 billion cubic meters in2030 and increase the installed capacity of wind and solar power to 1,200GW by2030.
• Nigeria also pledged net zero, aiming to reachit by 2060. § Australia has committed to $2 billion until 2025 towards climatefinancing for Pacific and Southeast Asia, of which at least $700 million willbe reserved exclusively for the Pacific.

Statements and declarations made over the two weeks of COP26 can be accessed at official website www.ukcop26.org under COP26 outcomes. Only some of the key discussions are captured here.

Global Pledges

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New Initiatives at COP26

COP26 concluded with multiple initiatives and bodies set up with the aim to ensure we keep the global temperature increase below 1.5°C. A few noteworthy ones are included below where ISSB, TRWG and compliance measurement body for emission commitments are directed towards ensuring data transparency and accountability.

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New international sustainability standards are expected to be set by the International Sustainability Standards Board (ISSB). In public’s interest, a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs will be set by ISSB. Its formation was announced by The Trustees of the International Financial Reporting Standards (IFRS) Foundation. ISSB is for companies to provide globally consistent and comparable sustainability disclosures that meet the needs of investors and other financial market participants. The ISSB's standards would assist in the provision of internationally uniform, credible non-financial reporting that is as comprehensive as any financial reporting framework today.

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The Technical Readiness Working Group (TRWG), designed by The Trustees of the IFRS Foundation, comprises of prominent organisations with experience in sustainability and integrated reporting standardsetting focused on satisfying the demands of investors as part of their work toward the establishment of a new board. The TRWG was formed to allow the ISSB to expand on the well-established work of long-standing international initiatives focusing on business value. The TRWG has worked on recommendations pertaining to General Requirements for Disclosure of Sustainability-related Financial Information, Climate-related Disclosures Prototype, Conceptual guidelines for standard setting, Architecture of standards, among other things.

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The Green Grids Initiative – One Sun One World One Grid was endorsed by more than 80 countries, making it the biggest political coalition for clean energy in the world. Besides the governments, it also joins forces with legislators, business leaders, international organisations, research institutions and civil society to achieve its goal of accelerating the creation of new infrastructure required for a clean-energy-powered future. It includes plans for new infrastructure development, including cross-border transmission lines, modern technology, international power trading arrangements, smart grids, charging points for electric vehicles, and micro-grids for rural communities and to ensure resilience during extreme weather.

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Compliance body to measure and monitor COP26 commitments - UN Secretary General, Mr. Antonio Guterres mentioned that he will be setting up a body to measure compliance of emissions cuts and climate finance commitments made. This will increase transparency, effectively monitor, and raise the bar on climate action globally.

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Noteworthy pledges and commitments

China-US climate cooperation: Global CO2 emissions from China and the US are 28% and 15% respectively. The two countries signed a joint declaration to boost climate cooperation over the next decade. Their agreement seeks a reduction in methane emissions, tackling deforestation and regulations in decarbonization.

Global agreements on Green Technology involved more than 40 world leaders to speed up affordable and clean technology by 2030 including zero-emission vehicles.

The Clydebank Declaration was signed by 22 countries to create zero-emission maritime shipping routes. Numerous nations and private funders have pledged $1.7 billion to Indigenous Peoples and Local Communities (IPLCs) protecting biodiversity in forests around the world.

The Global Energy Alliance launched a $10.5 billion fund for emerging economies i.e., countries commit to low-carbon, climate-resilient health systems.

COP26 Health Programme pledge to develop low-carbon health structures has 50 countries committed to adapting health systems to climate-resilient models. This is a partnership between the World Health Organization (WHO), UNFCCC Climate Champions, the UK government, and other health groups.

Governments, Cities, Automakers, and Ridesharing Companies Pledge to Phase Out Fossil Fuels by committing to transitioning new car sales to zero emissions by 2040. India, the UK, Canada, and Chile signed on along with cities and states such as California, New York City, Seoul, Buenos Aires, and more. The four largest car-producing countries namely, the US, Japan, Germany, and China did not sign on to the declaration.

6 countries and some states including France, Greenland, Ireland, Quebec, Sweden, and Wales, led by CostaRica and Denmark joined BOGA (Beyond Oil & Gas Alliance), the first-of-its-kind alliance that aims to halt new drilling for oil and gas, in alignment with the objectives of the Paris Agreement. Portugal, California, andNew Zealand did not sign that pledge, but committed to “significant concrete steps” to curb oil and gas production.

45 nations have pledged to create a more sustainable agriculture and land use mechanism that is eco friendly. 26 countries have committed to reform their agricultural policies to be more sustainable and invest in science to ensure food security. All continents were represented, with countries including India, Colombia,Vietnam, Germany, Ghana, and Australia.

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Company Initiatives

Supporting their respective country declarations and in keeping with the global trend to cut GHG emissions, some significant companies’ commitments are mentioned below.

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COP26 and ESG Book: An assessment on country-commitments affecting ESG Book

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ESG Book’s alignment to global climate initiatives

As a business, we are committed to reducing our greenhouse gas emissions and have taken action to realise this ambition. For example, in 2020 we transitioned our operational computing from on-premise servers to a variety of cloud-based platforms. These include the Google Cloud Platform and other cloud-based services which have a net-zero emissions target and have provided our employees with increased flexibility on working location, reducing the need for daily commuting. We have also updated our travel policy to encourage all employees to make more sustainable choices when travelling for business. We are UNGC signatories, indicating our ongoing support and commitment to universal sustainability principles and responsible business practices.

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Here is a brief about ESG Book’s own actions to reduce its climate impacts.

• ESG Book GmbH has an approved SBTi target available in the public domain. A streamlined target validation route exclusive to small and medium-sized enterprises was used to approve the target.
• ESG Book GmbH, UK Branch has committed to reduce absolute Scope 1 and Scope 2 GHG emissions 30% by 2030 from a 2018 base year, and to measure and reduce its Scope 3 emissions. As a step towards meeting that commitment, our London office is BREEAM rated - a sustainability rating indicating that the office has comprehensive renewable energy, energy efficiency, grey water, and recycling initiatives.
• ESG Book, with the support of key investors, is pressuring the world's largest corporate greenhouse gas emitters to take critical climate change action through participation in ClimateAction100+.
• ESG Book’s own products and services, including but not limited to the ones mentioned below, aim to support clients as well as users of the ESG Book platform on climate action.

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COP26’s Impact on ESG Book

COP26 provided a platform for corporates around the world from varied sectors pledge to reduce their climate impact, including net zero emissions. These commitments have triggered requests from government, investors, and civil society for companies to provide tangible and accurate disclosures. Only time will tell if this model is capable of delivering the critical large-scale carbon reductions, however, the establishment of a new accounting standards body, the International Sustainability Standards Board (ISSB), including climate-related disclosure significantly boosts the chances.

This is where ESG Book comes into the picture. Through a digital platform, we make sustainability data more widely available and comparable for all stakeholders, and we empower businesses to be custodians of their own data. Greater standardisation and regulation of disclosures and accounting methods will help us in boosting data collection efficiency and encouraging transparency across sectors. It will also enable more precise comparisons across time, companies, and geographies, resulting in a better knowledge of carbon risk and opportunity. Consequently, we hope to emerge with flying colours and establish ESG Book as an industry trend setter and make our presence more prominent than ever.

“We are, after all, the greatest problem solvers to have ever existed on Earth. If working apart, we are a force powerful enough to destabilize our planet. Surely working together, we are powerful enough to save it.”

David Attenborough 1 November 2021

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Conclusion of COP26: Lowlights

• No global price on CO2 (and other GHG emissions) has yet been finalised
• No concrete steps for transitioning to zero emission vehicles or solutions to phase out coal have been shared
• India and China agreed to phase down, instead of phase out coal by 2040, stating their development agenda and economic prosperity
• No decisive conclusions related to climate finance are made and how money will be given out to developing economies. § No decisions or agreements on actions relating to creating laws or rules for long-term climate finance (LTF) from developed to developing countries, despite being a part of the Climate Mobilization Act.
• Nationally Determined Contributions (NDC) lack proper action plans and provisions to limit Paris 1.5°C target, both conditional and unconditional by countries for the 2030 target, projected warming by 2100 falls to 2.4°C (1.8°C to 3.3°C).

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Summary of Discussions at COP26

• Messages and pledges from most politicians, international institutions/ associations mentioned the role of bankers to move swiftly to a net zero economy. Many global commitments and pledges have been undertaken, but the key is the effective action towards the same. COP26 has included limiting coal and other fossil fuel usage, giving possibilities to fuel efficiency standards and regulations in 2022. Although declarations and pledges were made at COP26, concrete steps to attain the same were not specified – such as the commitment made by China and the United States Climate Corporation. Implementation, however, is the key to making these noteworthy initiatives a reality.
• The discussions between the developed and developing countries show a lack of harmony and agreement. The developed countries’ focus was on protecting themselves whereas developing countries were seeking financial help to protect themselves and alleviate the burden caused by the developed ones.
• NDCs are expected to mobilize $33 million as part of Partnership Action Fund to help developing countries to contribute to the Paris Agreement and Sustainable Development Goals (SDG).

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The parties concluded the COP26 by adopting Glasgow Climate Pact. The accord is made up of three overarching cover decisions that reflect the COP’s overall political narrative. The resolutions include requests for developed nations to double their adaptation funding from 2019 levels by 2025. It also anticipates the parties that have not yet announced new or revised nationally determined contributions (NDCs) to do so before the next COP. The Pact also stipulates an annual high-level ministerial discussion on pre-2030 ambition, Glasgow Dialogue on loss and damage, and annual dialogues to strengthen oceanbased action.

COP27, to be held from 7-18 November 2022 at Sharm El Sheikh (Red Sea Resort) in Egypt, will continue the debate on how to further reduce the world’s carbon footprint by additional carbon dioxide and methane cuts. There will be more debate over the capital and resources provided by the developed countries to developing countries. How this affects industries in their respective countries will continue to be monitored.

In conclusion, experts believe that if countries keep to their global pledges and fulfil them in the stipulated time, global temperature could be limited to 1.8°C by 2100. COP26 is an example of international politics at its best, with different development priorities of developed and developing countries, and ‘Finance’ being the key driver for climate action or inaction.

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Next steps for COP27 and way forward

COP26 witnessed many commitments but pace of action remained a priority, and continues to be so. In the wake of natural disasters like hurricane Fiona and hurricane Ian across the Caribbean and North America, and floods in Pakistan, it is amply clear that climate change is a problem affecting our ‘now’ and the cost of inaction is really high.

COP27 should aim to accelerate global climate action and key discussion points; as also highlighted in the vision and mission; remain mitigation, adaptation, finance and collaboration. The Cancun adaptation framework established the approach for National Adaptation Plans (NAPs) to improve countries’ preparedness to climate related risks. The same were reinforced subsequently and with the support of UNEP, the number of countries covered are also increasing each year - 88 countries were covered by Adaptation Communications or NAPs at the time of COP26iv. With frequent natural disasters affecting us worldwide, it is also seen that the countries that are most affected by these disastrous events are also the least equipped to respond timely and take much longer to recover. NAPs have the potential of helping direct funding towards those that are more vulnerable to climate change. Climate finance towards adaptation has also increased year on year with about one third of overall climate finance being provided to adaptation in 2020 as opposed to 25% and 21% in 2019 and 2018 respectively.

The Russian invasion of Ukraine has had catastrophic human consequences. The war has also fuelled energy security concerns and resulted in an increase in fuel prices. The way forward from here could take countries to move towards renewable forms of energy. However, we are also seeing the rush towards finding new fossil fuel sources to secure energy in the interim as we build capacity of the renewable energy infrastructure and move our reliance from Russian fuel sources. EU’s REPowerEU transition plan to energy independence is an example of the same. Less is known about the potential climate impacts of the war but we do know that these emissions (and also the damage of property and land causing waste and potential leachate entering the soil and water, food security issues among many more impacts) were not accounted for in our commitments upto COP26. COP27 will have to account for the unexpected rise in emissions along with other environmental impacts.