It was always unlikely that the politicians and delegates at COP26 were going to deliver on all the expectations and hopes that scientists and activists had placed on their shoulders. However, as was expected economic realities, politics and money were always going to get in the way of the activist’s ideals. Additionally, governments and leaders had/have alternate priorities in the wake of the global pandemic.
A key objective of COP26 was to achieve commitments which would limit warming to the 1.5 degrees Celsius above pre-industrial levels sought after by the Paris Agreement back in 2015, and to reach net-zero by 2050 globally. The actual commitments made in Glasgow last month (November 2021) suggest that if effectively delivered, global warming could be limited to a 1.8 degrees Celsius.
The Implications for Business
Going into COP26 at the end of October, the Treasury announced that the UK was to be the first of the G20 countries to mandate TCFD–aligned requirements for the largest financial institutions and businesses to report their climate-related risks and opportunities. At COP26 it was announced that by 2023, firms that meet this requirement will be obligated to lay out a detailed public plan for how they are to reach their targets, this must be in accordance with the countries 2050 net-zero targets. This all follows on from the Chancellor Rishi Sunak’s commitments to make TCFD aligned disclosure mandatory by 2025, beyond the comply or explain approach (see: Oct 29 gov press release).
As the 2020 comment from the Chancellor was highlighted in the press release, it would suggest that the government is aiming for the TCFD requirements to become universal for all UK companies. These more drastic/impactful plans are yet to be published and the government has said that (at this point in time) the UK was not making ‘firm-level’ net-zero commitments mandatory, and that it is aiming to increase ‘transparency and accountability’. The standards for these plans are being set by an expert panel as a preventative measure against greenwashing.
In the weeks prior to COP26, the IFRS Foundation (International Financial Reporting Standards) announced they are in the process of developing the new international sustainability standards board. The aim of the new board is to develop a ‘comprehensive global baseline of high-quality sustainability disclosure standards’ in order to meet investors and other capital market participants’ information needs around sustainability related risks and opportunities as the demand for more formalised and streamlined corporate sustainability disclosures grows.
In the midst of the noise during the weeks of COP26, the London Stock Exchange announced its Voluntary Carbon Markets solution, with the aim of increasing the availability of finance for projects supporting the transition to net-zero. The goal of the project was to address the issue of access to capital for the development of new climate projects globally, and primary market access to high-quality carbon credits for both corporates and investors. The latter of the two issues is not to allow companies to offload their emissions and use carbon credits as a free pass to continue emitting. The access to high quality credits enables companies and investors to augment their net-zero transition strategies by financing additional projects to offset the emissions unavoidable in the path to net-zero.
Although it seems standards and requirements are wholly focussed on the biggest players, it is necessary that every business in the UK takes notice as the changes are coming, and fast. The level of accountability and the vigour in which the standards are enforced will be highly important in their success, this may, in time, come down to legislative measures. It is important for businesses to be on their toes in this current climate.
Going forward it is highly likely that all businesses will have to provide corporate sustainability disclosures, portraying how they are incorporating environmental, social and governance (ESG) into decision making and corporate culture, regardless of their size. As the risks and opportunities can be significant both financially and non-financially it is important that companies understand and report simultaneously on all issues, including those which do not affect their value but are material to both society and the environment.