Over the past two weeks, Egypt hosted the 27th UN Conference of the Parties on Climate Change (COP27). The event took place at a resort in Sharm El-Sheikh from November 6th to the 18th. It brought together over 30,000 policymakers, activists, and scientists with the goal of pushing global and national commitments toward a more sustainable future.
The event was split into Thematic Days to provide more focus on an extremely broad topic and agenda. The days included Finance Day, Science Day, Youth & Future Generations Day, Decarbonisation Day, Adaptation & Agriculture Day, Gender Day, Water Day, Ace & Civil Society Day, Energy Day, Biodiversity Day, and Solutions Day. The inclusion of a Youth & Future Generations Day was a novel idea acknowledging that youth play the smallest role in developing climate action plans but will suffer the largest consequences if developed plans are inadequate.
In this article, we will consolidate the most relevant events from the different days of COP27 for businesses to consider as 2022 ends and they prepare for a more climate-focused future in 2023 and beyond. The conversations at COP27 can help predict what areas of sustainability will be given the most attention in the coming year and therefore provide important guidance for companies to stay ahead of industry trends. Some important themes from COP27 with implications on business include loss and damage financing, the rejection of greenwashing, the need for a higher carbon price, the rise of offsets, and a focus on biodiversity.
How might COP27 affect your business?
The climate reparations are coming
On Monday, November 7th, the first day of the conference, delegates added the issue of "loss and damage" to the official summit agenda. Delegates hoped to discuss climate reparations to developing nations given their high vulnerability to climate impacts but low contribution to historical greenhouse gas emissions. By the end of the conference, the first-ever global agreement calling for climate reparations was established. The specifics of how this fund will operate will be laid out at COP28 next year in the United Arab Emirates. When diving into the text in detail, activists note the inclusion of “low-emission” energy as part of the solution. Some may worry this provides a loophole for natural gas and nuclear energy to continue to grow. Nevertheless, the creation of this agreement is a landmark achievement and will result in significant climate-dedicated cash flows to vulnerable nations.
The structure of how climate reparations will work will not be set until next year. Therefore, businesses have a year to prepare in anticipation of next year’s COP28 agreement. Businesses can capitalise on the subsequent sustainability opportunities in previously underfunded countries. This agreement could open novel markets for companies in infrastructure, manufacturing, capital goods, and more for expansion and business development. With large sums of cash flowing to previously underfunded regions, companies may find new opportunities in regions not previously anticipated.
Greenwashing is out, reliable data is in
On Tuesday, November 8th, the UN released a report about greenwashing and its widespread impacts on successful climate action. The UN provides a list of recommendations to ensure developed net zero pledges do not fall for greenwashing pitfalls. An example of one recommendation is the need to establish short- and medium-term absolute emissions reduction targets in addition to ones focused on the long term. Without targets for varying timelines, it is easy to develop unachievable long-term goals. Incremental work ensures companies and local governments continue to push themselves and do not forget about their plans for too long. If you would like to read more of the UN report you can access it here.
The release of this report is a reminder that successful climate action requires reliable data to develop reliable plans and set realistic targets. Unreliable data and unrealistic goals provide short-sighted benefits but are extremely detrimental in the long term as companies and local governments try to undo false promises. Only those with legitimate emissions reductions will get to benefit from the positive publicity as governments crack down on greenwashing. Greenwashing is unlikely to be fully quashed any time soon, but in light of COP27, we suggest reviewing your climate goals to ensure they are ambitious but achievable to prevent false promises down the line.
The carbon price needs inflation
We all know inflation is on the rise. However, according to the International Monetary Fund (IMF), the price of carbon also needs to see a significant rise. The IMF says that the carbon price must go up to at least $75/ton by 2030 for global climate goals to succeed. Timely for the European Union, they already established a benchmark price at about 76 euros/tonne. However, the EU is unique in its resolve as the US state of California has carbon allowances selling for just under $30/tonne and many regions have yet to establish a price at all.
A carbon price can be established in the form of a carbon tax or an emissions trading scheme. Although different in their design and implementation, both follow a structure that forces the original polluter to pay. Businesses that do not reduce their carbon emissions will feel the financial consequences as more regions implement these systems. Getting ahead of regulation is a smart strategy to prevent headaches and unnecessary taxes in the future. We recommend beginning the greenhouse gas accounting journey to start reducing emissions in advance of expensive regulation.
Renewable energy offsets are back
During Finance Day, John F. Kerry, the White House climate envoy, outlined the USA’s carbon trading scheme. The voluntary plan aims to expand the sale of carbon credits globally to help boost renewable energy implementation in developing countries. The “Energy Transition Accelerator” will allow companies to claim credits for decarbonisation projects outside national borders and within developing countries.
While the plan faced some backlash, its implementation could open opportunities for US companies to focus on clean energy as a means to offset necessary emissions of operations. Broadening beyond the US’s scheme, this COP saw a rise in the legitimacy of offsets. Offsets were pushed aside in past years to focus on other strategies. However, people noted a significant increase in offset conversations throughout COP27. Offset and renewable energy projects can help offset a company’s internal emissions or be sold to other organisations falling short.
Biodiversity gets its moment
Although the 27th UN Conference of the Parties on Climate Change wrapped up this past weekend, the UN’s involvement in sustainability-related conversations is not complete for the year. The UN is hosting COP15, the UN Biodiversity Conference, in Montreal this December. On Wednesday, November 16th, Biodiversity Day of COP27, 350 civil society leaders called on heads of state to prioritise the upcoming event.
Nature and biodiversity are becoming key sustainability issues of attention. Companies and governments need to respond and report to relevant frameworks. We see companies increasingly beginning to report on standards and frameworks beyond climate. For example, in 2021 the Taskforce on Climate-related Financial Disclosures (TCFD) announced a new initiative called the Taskforce on Nature-related Financial Disclosures (TNFD). The framework was tested this year and is scheduled to officially launch in 2023. TNFD mimics the structure of TCFD with the intention to help companies and local governments report on the risks associated with biodiversity loss and ecosystem degradation. We see businesses work towards biodiversity reporting to stay on top of sustainability trends.
The end of COP27 boasts many exciting successes as well as evident shortcomings. Regardless of your perspective of the size of its impact, COP27, like all of the COPs before it, will push companies and governments in specific areas they hadn’t previously intended. COP27 was another step in highlighting the crucial need for delivery on climate action.
Based on speeches of political leaders and reports presented, a world of climate related-regulation is coming into clearer focus. Global enforcement is not coming anytime soon but specific nations and regions are setting ambitious goals for themselves. Businesses can prepare for regulation in their operating regions today by beginning their GHG (greenhouse gas) emissions reporting journey if they haven’t already. However, before diving into reducing a business’s emissions, a company needs a solid grasp of how much they are emitting and where it is originating.
How Greenstone can help
Greenstone provides enterprise-level software solutions to enable companies to automatically and accurately measure their carbon emissions and report their Environmental, Social and Governance (ESG) performance. Greenstone’s solutions are built to evolve with a company’s ESG reporting journey, to support them both now and in the future as a company collects more in-depth data year on year.
As an organisation explores the complex area of Scope 3 emissions reporting, Greenstone’s software solutions enable the calculation of emissions across a company’s supplier network and an investment portfolio to support reporting in this area.
Greenstone’s suite of software solutions is built to enable its clients to adapt to the constantly evolving sustainability landscape and its team of ESG industry experts is prepared to help all our clients act on the developments of COP27 most relevant to their industry and region.
- COP27 - Initiatives
- COP27 Week 1: Recap | Earth.Org
- high-level_expert_group_n7b.pdf (un.org)
- Exclusive - COP27: IMF Chief Says $75/ton Carbon Price Needed By 2030 (ibtimes.com)
- More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap (imf.org)