What does COP26 mean for businesses?
Updated: Apr 7, 2022
What is the COP26?
It stands for the 26th Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC), and will take place in Glasgow from Oct 31st to Nov 12th this year.
Countries agreed to the international UNFCCC treaty in 1992 – setting rules and expectations for global collaboration in addressing climate change. Governments meet annually at the COP to discuss and improve their climate game plans with equal weight given between the poorest countries and largest economies.
How does COP26 relate to the Paris Agreement? The Paris Agreement was reached at COP21 in 2015. Under the landmark agreement, nearly every nation committed to limiting global warming to <2ºC (and preferably <1.5ºC) above pre-industrial levels. While the agreement is legally binding, countries’ commitments to limiting emissions (known as National Determined Contributions or “NDCs”) are not.
source: Climate Tech VC
It is also a major focus for China, India and the US, which are jointly responsible for more than 50% of the world’s carbon emissions.
What are the goals of the COP26?
Alok Sharma - a British Member of Parliament and the President of COP26 - has said he wants this year's conference to reach an agreement on a number of key targets, including:
1. Keep 1.5 degrees within reach
"We need to come out of Glasgow saying with credibility that we have kept 1.5 alive."
Mr Sharma said on Sunday as delegates began arriving in the Scottish city.
Countries are being asked to come forward with ambitious 2030 emissions reductions targets that align with reaching net zero by the middle of the century. To deliver on these stretching targets, countries will need to:
Put an end date to the coal era.
End deforestation by the end of the decade, as forests play a crucial role in removing carbon from the atmosphere.
Make all new car sales zero emissions within 14-19 years.
Encourage investments in renewables.
Reduce emissions from methane, a potent gas with more than 80 times the warming power of carbon dioxide.
2. Adapt to protect communities and natural habitats
Protect and restore ecosystems
Build defences, warning systems and resilient infrastructure and agriculture to avoid loss of homes, livelihoods and even lives
3. Mobilise finance
Providing $100 billion of annual climate financing, which wealthy nations already agreed to, to help developing countries reduce fossil fuel emissions and adapt to the impacts of the crisis. International financial institutions must play their part and we need work towards unleashing the trillions of dollars in private and public sector finance which is required to secure global net zero.
4. Work together to deliver
We can only rise to the challenges of the climate crisis by working together.
At COP26 we must:
Finalise the Paris Rulebook (the detailed rules that make the Paris Agreement operational)
Accelerate actions to tackle the climate crisis through collaboration between governments, businesses and civil societies
Source: COP26 website, CNN
Where are we standing right now?
To limit the increase of global warming to 1.5 degrees, global emissions must plummet by 45% by 2030 from 2010 levels, and reach net zero by 2050 - requiring huge changes to countries' systems of transport, energy production, manufacturing and farming. Countries' current pledges would see global emissions soar by 16% by 2030 and would potentially lead to a global warming of 2.5 degrees.
What that would mean to the environment and climate, you can find in my other blog post about IPCC report.
Source: Climate Action Tracker
What does COP26 and it's outcome mean for businesses?
At the end of talks there’s likely to be some kind of Glasgow declaration. A clear win on just one issue will probably count as success, and it’s possible there will be progress that can be built on down the line. Source: Bloomberg.
Businesses will face new challenges but can also profit from the changes ahead:
Increased regulations and carbon taxes will drive innovations and the voluntary carbon credit market
The CEO Climate Alliance sent an open letter to the COP26 participants demanding changes in regulation and taxes:
Eliminate fossil fuel subsidies, cut tariffs on climate-friendly goods, develop market-based, meaningful and broadly accepted carbon pricing mechanisms and take adequate measures to ensure a just transition. An escalating carbon price is a critical enabler for greater competitiveness of low-carbon technologies. In parallel, international cooperation on a global, connected carbon market*** should ensure broad market access for these low-carbon technologies, while controlling carbon leakage.
Carbon taxation and emissions-trading of global greenhouse gas (GHG) emissions in 2021 will expand, and the price of carbon (already above €60 per ton of carbon dioxide equivalent in the European Union’s Emissions Trading System) will probably continue to rise. Source: Bain & company
This will drive innovations in accounting, reducing, capturing and storing carbon emission and other greenhouse gases such as methane and nioxide.
These opportunities may involve the creation of new products and services, and even entirely new business models. For example, some companies are investigating in alternatives to concrete, such as building material that uses waste glass, plastic and even paper or by using circular concrete.
In particular, the rising price of carbon creates significant opportunities for businesses that can develop products and solutions that generate carbon credits by capturing and storing carbon – for example, filters that directly remove carbon dioxide from the atmosphere, or seaweed farming that captures and sequesters carbon.
The next 1,000 billion-dollar start-ups will be in climate tech. Blackrock CEO Larry Fink
Bloomberg publishes regularly a list of companies in the Climate Tech space:
One of the key items up for negotiation at the COP26 is the regulation of the carbon markets established under the Paris Agreement. These negotiations are not about setting up new markets but are about regulating those already authorised under the Paris Agreement. Article 6 of the Paris Agreement provides a framework to help countries work together to reach emissions-reduction goals, primarily by trading credits that count toward their targets and sharing the burden of the climate fight (carbon-offset program).
Much of the controversy comes down to the integrity of the accounting, making sure that each carbon credit is rigorously validated, isn’t double counted and that its contribution to global emissions reduction can be verified. The most climate-conscious countries and campaigners are trying to ensure that each step to reduce emissions only counts once. Source: Bloomberg. The Environmental Defense Fund (EDF), an US NGO, has warned that up to 30% of global emissions are at risk of double counting.
The voluntary market is booming because many private companies announced "net zero" or "climate positive" targets. While buyers and sellers wait for decisions from the UN process, that market is booming. The latest figures from information provider Ecosystem Marketplace show traded volumes from the first eight months of 2021 up 27% year-to-date, equivalent to 240 million tonnes of CO2, and up 58% in value terms, to $748m. Source: Energymonitor
Nevertheless, the cost of offsetting corporate carbon emissions is expected to surge tenfold over the next decade as growing numbers of businesses adopt net zero targets, with carbon credit prices tipped to reach between $20 and $50 a metric ton of CO2 by 2030, according to new research.
Carbon offset prices on average stand at just $3-5 per metric ton of CO2 at present, with experts fearing that prices are far below the level required to both unlock significant investment in emissions-mitigation measures, such as carbon removal technologies or large scale nature-based solution projects, and provide companies with an additional financial incentive to reduce their own emissions and avoid the need to purchase offset credits.
However, carbon off-setting is named as "greenwashing" by Greta Thunberg and has too reduce massively by 2030. To reach net-zero, we need to reduce and avoid emissions and just the remaining 20 bn tonnes of emissions can be removed with carbon removal approaches. Right now, we don't even have the technologies yet to remove carbon on big scale, so the whole power of innovation and investments needs to flow into avoidance and reduction projects:
Investors are shifting money from "bad" companies to "good" companies
"From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019.1 I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity." says Lary Fink of Blackrock in his 2021 CEO letter.
The Bloomberg New Energy Foundation calculates that between $78tn and $130tn of new investment is needed by 2050, in areas such as power generation and hydrogen production, to enable the world to meet its environmental targets. Businesses should watch out for any green financing arrangements – both positive and negative – that are likely to come out of COP26, as well as anything specific to their areas of focus, such as clean air, habitat protection or renewable energy sources.
How quickly we need to change and how drastically the shift is, is shown in the BP report about the Energy Outlook:
Source: Energy Outlook 2020 BP
Growing corporate awareness to the challenges posed by climate change can be seen in the ever-growing list of companies signing up to net-zero targets. By September 2020, 1,541 major companies, with collective revenues of $11.4trn, had net-zero targets, up from 500 at the end of 2019.
While climate tech makes up just a fraction of all VC dollars—about 6% over the last few years—the industry has been steadily gaining attention from investors. In the first three quarters of 2021, $30.8 billion has been invested in climate tech—already more than any previous full year, according to data from PitchBook. Climate-tech investments through the end of Q3 this year are already 30% higher than all of 2020. For perspective, global VC funding was more than $450 billion as of Sept. 30, per Crunchbase, already about 50% higher than the whole of 2020.
Source: Morning Brew
Here is an overview of Venture Capital Companies investing into Climate.
Here is a running list of Investors in the Climate Tech space: https://climatetechvc.org/climate-tech-vcs/
Increased consumer awareness and consumers are willing to pay a green premium.
Climate change is the public’s second greatest concern (following job losses), according to the Edelman Trust Barometer 2021. Media coverage of COP26 is likely to influence voters’ expectations around what their countries can – and should – be doing to address the issue.
Growing awareness of the climate crisis is influencing consumer expectations and behaviours. The EY Future Consumer Index found consumers willing to pay a premium for sustainable products and services will make up a third of the consumer base in 18 major markets as we move beyond COVID-19.
McKinsey found that: "Upward of 70 percent of consumers surveyed about purchases in the automotive, building, electronics, furniture, and packaging categories said they would pay an additional 5 percent for a green product if it met the same performance standards as a non-green alternative. But as the premium increases, the willingness to pay melts away."
As business you need to re-consider your whole value chain and design of products to go "green". By designing circular products, you are making sure that each product can be:
Reduced production --> integrate sustainable resources / materials
Repaired --> easy to replace parts
Reused --> increase durability
Recycled --> easy to dismantle, easy to recycle each part
If you integrate the whole circular process into your value chain, you can enhance your profits by offering these extra services while offering a more durable product with less resources needed. One example is LOOP, a terracycle divison to, to reuse disposable products such as parfums, shampoos, etc.
In my episode about eWaste, I dived deeper into the issue of loosing 57 billion USD a year in raw materials to Waste.
5 Steps to start net zero as a business
Invest into renewable energies for your production, logistics or any other key processes.
Set a target with steps which can be reached within the first 3 months https://sciencebasedtargets.org/
Start with consumer facing actions to get your consumer engaged
Rethink your value chain towards circular economy.
What is the Paris Agreement?
The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016.
Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.
To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century.
The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.
Implementation of the Paris Agreement requires economic and social transformation, based on the best available science. The Paris Agreement works on a 5- year cycle of increasingly ambitious climate action carried out by countries. By 2020, countries submit their plans for climate action known as nationally determined contributions (NDCs).
In their NDCs, countries communicate actions they will take to reduce their Greenhouse Gas emissions in order to reach the goals of the Paris Agreement. Countries also communicate in the NDCs actions they will take to build resilience to adapt to the impacts of rising temperatures.
To better frame the efforts towards the long-term goal, the Paris Agreement invites countries to formulate and submit by 2020 long-term low greenhouse gas emission development strategies (LT-LEDS).
LT-LEDS provide the long-term horizon to the NDCs. Unlike NDCs, they are not mandatory. Nevertheless, they place the NDCs into the context of countries’ long-term planning and development priorities, providing a vision and direction for future development.
What is Scope 1-3 of the Greenhouse Protocol?