What is the impact of COP26 on companies?

By Manisha Kumar, Third Year LLB Student

The importance of COP26

The world is currently on track for a 2.4 degree warming and has already seen a warming of 1 degree.^[1] This is despite the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC), a legally binding international treaty on climate change, aiming to strengthen responses to limit the global average temperature increase to ‘well below 2^oC above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 ^oC above pre-industrial levels’ (Paris Agreement, Article 2(1)(a)). This warming, as a result of human-induced climate change, has already resulted in many weather and climate extremes, such as forest fires, droughts, and new heat records.^[2] If global warming increases to above 2 degrees, the damages will be drastic and aggressive resulting in a loss of: biodiversity, liveable land and shortage of resources.

The 26^th session of the Conference of the Parties (COP26) to the UNFCCC is therefore very important: it will, in part, determine how far Parties to the UNFCCC have come in meeting the emission targets set out in the Paris Agreement in 2015 and discuss the success of the methods to achieve the targets discussed at COP25 in Madrid. 

COP26 is taking place in Glasgow, Scotland, at the start of next month and be the first time where 30,000+ delegates from 200+ nations will gather. 

There are 4 key goals which will be discussed at COP26:^[3]

1. Mitigation: To limit carbon emissions to keep global warming below 2 degrees and keep 1.5 degrees within reach;
2. Adaptation: To put things in place to adapt to an already changing climate; 
3. Finance: Deliver on the commitment by developed countries to mobilise USD100 billion in climate finance per year by 2020.
4. Collaboration: Working together to reduce emissions, and mitigate and adapt to climate change.

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What are the anticipated impacts of COP26 on companies? 

Due to the increasing momentum around climate change, companies, banks, charities, and governments are more committed to reduce their carbon footprint. COP26 will impact companies in a variety of ways, including:^[4]

1. Affected by new legislation to achieve net-zero, such as a ban on new internal combustion engines by 2035.
2. Enhanced climate-related disclosure requirements. For example, under the Corporate Governance Code 2018, premium listed companies must ensure their business strategy is compatible with net-zero emissions and decarbonisation. Additionally, under the Taskforce on Climate-Related Financial Disclosures, they must disclose their climate-related financial matters and risks.
3. Increased pressure on companies by activists to “go green”. 
4. Reputational risks for companies who are not doing enough, which may impact mergers and acquisitions 

As a result of these likely effects, Environmental, Social and Corporate Governance (ESG) is increasingly becoming an essential part of a business’s strategy. Businesses are being held to a higher standard and, in turn, must align their strategy with sustainability goals such as carbon reduction. Embracing ESG is important as it increases the chance of a business being successful economically. Investors and financers would not wish to invest in a company who falls short of disclosing their plans to align with combatting climate change. In turn, it would decrease the reputation of a company and increases their likelihood of litigation for not acting on climate change. 

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How can companies be vital players in combating climate change? 

Gudrun Cartwright, the Environment Director at Business in the Community, argued there is a lack of stable policy on the environment in the UK, which has made it challenging for business to plan and act with certainty.^[5] However, under s.172(1)(d) of the Companies Act 2006, a director must consider the impact of the company’s operations on the community and the environment. Collaboration, the final goal to be discussed at COP26, makes it vital for both public and private sector organisations to combat climate change. For example, companies, such as Capgemini, are already working collaboratively with their clients to save 10 million tonnes of carbon-dioxide by 2030.^[6]  There are several initiatives companies can implement to curb the impact of climate change such as:

1. Measure carbon footprint: Businesses should measure their annual greenhouse gas emission and work on reducing these emissions in line with targets set in the Paris Agreement. 
2. UN Race to Zero Campaign: A global campaign from businesses to prevent the future threats of climate change and increase sustainable growth. Businesses work with their peers, customers and supply chains and it sets science-based emission targets in like with the ambition to limit global warming to a maximum of 1.5 degrees.^[7]
3. Renewable energy: A business generating their own energy by using renewable energy sources such as wind energy or solar power. 
4. Supply chain: Supply chain emissions are the culprit for most of corporate carbon footprint so a company should adapt their supply chain risk management strategy. While decarbonising raw material inputs may be costly and difficult for producers, it is necessary and allows for greater collaboration which, if done correctly, can be a game-changer for climate change.^[8]
5. Transportation: Road transport accounts for 10% of global emissions.^[9] Therefore, incentives can be implemented for employees who use eco-transport (such as bicycle travel or public transport).

Business leaders must be at the forefront of tackling climate change because while climate change poses a threat for businesses, businesses pose a greater threat for climate change. Pressures from climate risk creates considerable opportunities for businesses to be innovative in the methods they take to alter and align their strategies in accordance with COP26. 

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^[1] Climate Action Tracker, ‘Temperatures’ (2021) <https://climateactiontracker.org/global/temperatures/> accessed 26 October 2021.

^[2] IPCC, ‘Summary for Policymakers’ in V Masson-Delmotte, P Zhai, A Pirani, SL Connors, C Péan, S Berger, N Caud, Y Chen, L Goldfarb, MI Gomis, M Huang, K Leitzell, E Lonnoy, JBR Matthews, TK Maycock, T Waterfield, O Yelkçi, R Yu, and B Zhou (eds), Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sizth Assessment Report of the Intergovernmental Panel on Climate Change(Cambridge University Press 2021).

^[3] UN Climate Change Conference UK 2021 in partnership with Italy, ‘COP26 Goals’ (2021) <https://ukcop26.org/cop26-goals/> accessed 25 October 2021.

^[4] George Murray, Jeff Twentyman ‘What is COP26 – and why should businesses care?’ (Slaughter and May, 2021) <https://my.slaughterandmay.com/insights/client-publications/what-is-cop-26> accessed 14 October 2021.

^[5] NatWest, ‘How UK businesses can be ready for climate change’ (The Telegraph, 6 June 2019) <https://www.telegraph.co.uk/business/tips-for-the-future/ready-for-climate-change/> accessed 21 July 2021

^[6] Capgemini, ‘Capgemini announces is ambition to become a net zero business by 2030’ (2020) <www.capgemini.com/gb-en/news/capgemini-announces-ambition-to-become-net-zero-business-by-2030/> accessed 14 October 2021.

^[7] UNFCCC, ‘Race to Zero Campaign’ (2021) <https://unfccc.int/climate-action/race-to-zero-campaign> accessed 21 July 2021 

^[8] Simon Mainwaring, ‘Why and how businesses must tackle climate change now’ (Forbes, 25 October 2018) <www.forbes.com/sites/simonmainwaring/2018/10/25/why-and-how-business-must-tackle-climate-change-now/?sh=6fbe8f834712> accessed 14 October 2021. 

^[9] UN Climate Change Conference UK 2021 in partnership with Italy, ‘Accelerating the transition to zero emission vehicles’ (2021) <https://ukcop26.org/transport/> accessed 21 July 2021.

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