What is COP26?

COP26 is due to be held in Glasgow in November 2021 after being delayed for one year by the Covid-19 pandemic.

COP26 is the fifth COP since the landmark 2015 Paris Agreement of COP21, which means that countries’ Nationally Determined Contributions (NDCs) resulting from COP21 are due to be updated. It has become clear that the COP21 NDCs are not sufficient to limit global warming to 1.5 degrees and therefore COP26 represents a critical juncture in the global approach to effective climate target setting. In fact, by 2030 current NDCs would only sum to a 12% decrease in emissions (2010 baseline), and to reach the 1.5 degree target a 45% decrease in emissions is necessary.

The two most significant agreements of previous COP summits, the Kyoto Protocol and the Paris Agreement, have demonstrated the potential impact of climate regulation on businesses, as discussed in our Short History of COP series. Since COP1 in 1995, climate change has become a pervasive issue for businesses who wish to manage risk and today, innovative business leaders are also identifying opportunities for differentiation through sustainability.

Being prepared for the likely outcomes of COP26 is more important than ever for your business.

Why is COP26 important for your business?

The UNFCCC has outlined four central goals for COP26, which are:

1. Secure global net zero by mid-century and keep 1.5 degrees within reach
2. Adapt to protect communities and natural habitats
3. Mobilise finance
4. Work together to deliver

We expect 4 major impacts on businesses resulting from COP26, the extent of which will depend on the level of collaboration achieved during the conference.

1. Rising scrutiny on corporate pledges
2. Increased reporting requirements and mandates
3. Expansion of reporting beyond emissions and climate risks
4. Doubling down on the value of decarbonisation

Rising Scrutiny on Corporate Pledges

There will be pressure from investors, regulators and the public on businesses to set meaningful climate targets and to stick to them. Many businesses are now aligning themselves with a 1.5 degree future by signing up for Net Zero targets, which (mostly) commit businesses to halve their emissions by 2030 and be Net Zero by 2050. By doing this, businesses are mitigating the risk of tougher future emissions regulations, and committing to targets that should set the way for effective NDCs.

However, not all Net Zero pledges are created equal. Some Net Zero pledges are mostly made up of just buying offsets, whereas some science-based Net Zero targets which consist of two parts:

1. Reducing emissions by decarbonising the business.
2. Neutralising any of the residual emissions that cannot feasibly be abated, through the use of carbon removals.

Businesses are therefore being encouraged through this to focus on decarbonisation, with carbon removals to be used only as a last resort for residual emissions.

It is important to get the target setting process right for your business, and we are beginning to see the first cases of legal challenges for false or misleading climate pledges, such as those against BP and other oil & gas giants. The UK CMA has recently released advice for businesses on how to comply with the law on making environmental claims, and has told businesses that they have until New Year 2022 to make these changes.

Increased Reporting Requirements and Mandates

We are expecting to see increased reporting requirements and mandates in the near future. There will be stricter regulations surrounding sustainability initiatives, and the EU’s Corporate Sustainability Reporting Directive (CSRD) shows how this is already a trend we are beginning to see being implemented. Read more about this in our article on the CSRD.

The COP26 goal for collaboration means that businesses will be encouraged to be transparent in their climate action efforts. Therefore, businesses need to have a clear and actionable climate strategy that can be easily communicated with the public, auditors and regulators.

Movement Towards Non-Carbon-Related Reporting

COP26 emphasises the importance of protecting communities and natural habitats. This is directly related to reducing greenhouse gas (GHG) emissions and therefore reducing the warming of the atmosphere, but it is also related to other kinds of environmental action. There will be increased pressure for businesses to consider other impacts, such as their impacts on biodiversity, and their social impacts.

An extension in reporting requirements has already begun in both the CSRD the EU Green Taxonomy, which require multiple environmental and social reporting metrics. Therefore, it is essential that businesses understand and prioritise their emissions reduction plans, as well as measuring and improving their impacts in other ESG (environmental, social and governance) areas in order to be ahead of the curve.

Doubling down on the value of decarbonisation

COP26 has announced a focus on the mobilisation of finance in the fight against climate change, with much debate on this topic already in the news.

There are ongoing challenges facing offsets markets, including clarity around the quality of carbon offsets. The finalisation of Article 6 of the Paris Agreement at COP26 would solidify the rules governing international carbon markets. If (a big if) Article 6 is finalised, then the rules should aim to prohibit double-counting of emissions and focus efforts on emissions reductions rather than just offsetting.

For feedback on this article or questions related to how your organisation should approach sustainable reporting, drop us a line at insights@altruistiq.com.

Altruistiq is a sustainability SaaS and helps some of the world’s largest companies to sustainably sell more, spend less, and save time.

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