The recent COP27 summit has had mixed reviews in terms of outcomes. However, there are plenty of areas that companies now need to understand and act upon. Here are five:
1- More strength to the power of procurement:
The US government made a major announcement during COP27 that aims to ensure federal suppliers must disclose vital environmental data and set ambitious decarbonization targets. The proposed Federal Supplier Climate Risks and Resilience Rule would require major federal contractors to disclose their greenhouse-gas emissions and climate-related financial risks publicly and set science-based emissions reduction targets. The rule addresses greenhouse-gas emissions and protects the federal government’s supply chains from climate-related financial risks. This proposed legislation follows what has gone on elsewhere. Last month, the Norwegian government issued a whitepaper that could require state-owned companies to set science-based targets. In June last year, the UK government published new measures that firms must commit to net-zero to win government contracts. This latest announcement from the US should encourage other governments and businesses to use their influence and opportunities across supply chains to advance ambitious climate goals.
2- Fresh demands for transparency:
The UN High-Level Expert Group on Net-Zero Emissions published a new report on net-zero commitments for businesses, financial institutions, cities, and regions. The report criticized the rise of weak net-zero pledges and greenwashing companies providing misleading information on their climate efforts. The report also urges the government and authorities to introduce regulations on net-zero pledges, starting with the large corporate emitters. If governments implement the recommendations, businesses will face stricter scrutiny regarding their net-zero commitments and be subject to more transparent climate disclosure requirements.
3- Focus on consistent disclosures:
At COP27, CDP and the IFRS Foundation announced that CDP will incorporate the International Sustainability Standard Board’s (ISSB) climate-related disclosure standard (IFRS S2) into its global environmental disclosure platform. Investors will now have access to consistent climate-related information, which will reduce the reporting burden on companies by aligning requirements. The first year will focus on establishing the aims, approach, and infrastructure, including resources and guidance material. The final phase, expected to run from November 2023 to 2027, will be dedicated to high-quality adoption of the ISSB global baseline by putting ISSB’s standards into jurisdictional requirements worldwide.
4- Adaptation comes to the fore:
COP27 signaled that the world’s climate change efforts must now focus more on adaptation solutions. Six years ago, world leaders adopted the Paris Agreement, a commitment to keep global warming below 2C above pre-industrial levels, and preferably limit warming to 1.5C. As of now, we are not on track to hit this goal. With fossil fuels not going away any time soon, improved and new carbon removal technologies will be vital in achieving net zero by 2050. COP27 ended with a breakthrough agreement to provide “loss and damage” funding for vulnerable countries hit hard by climate disasters. This fund is a response to the growing demand by developing countries for more substantial commitments on adaptation financing. Although this fund is a significant and positive step, there is still much work to be done determining who will contribute to it, the level of funding, the exact definitions of loss and damage, and when payments will start. Earlier this year, The European Commission approved an excess profit tax for oil and gas companies. The UK and the US are also considering penalizing fossil fuel companies that are not using their windfall profits to help consumers cope with high energy prices. During COP27, recommendations were made to use the global profit tax on oil and gas companies to help pay for the loss and damages to which these companies directly contributed.
5- Vast untapped potential in Africa:
With COP27 being hosted in Egypt, the importance of Africa and the Middle East in achieving global net-zero objectives took greater prominence. A new African Voluntary Carbon Market Initiative (ACMI) will help that. Kenya, Malawi, Gabon, Nigeria and Togo have already committed to working with the ACMI to scale carbon-credit production via voluntary carbon market activation plans. The initiative aims to produce 300 million carbon credits yearly by 2030, and 1.5 billion by 2050. It has real potential to make carbon credits a significant industry for the region and deliver long-lasting benefits by creating jobs, driving green investment and reducing greenhouse-gas emissions. Africa currently faces challenges related to its under-developed energy infrastructure. However, a well-planned transition towards sustainable energy alternatives could unleash economic growth in this continent.
Looking ahead:
Next year, the United Arab Emirates will host COP28. We expect to see a continuation of the shift from commitments to implementation, from detachments to partnerships, and from incremental change to absolute change.
Ayman Chowdhury is Competent Boards’ Director, Programs & Advisory. Follow Competent Boards on LinkedIn.
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