Almost two weeks on from COP26, CDP hosted its first ever COP debrief for companies. Companies were invited to a series of panel discussions; the first focused on the formal outcomes of COP negotiations and the second on corporate action during COP26. Here, we share the key takeaways from our conversations with Tom Rivett-Carnac, Founding Partner of Global Optimism, Nick Baker, Deputy Director of Engagement at the UK’s COP26 Unit, and Sophie Punte, Managing Director of Policy at the We Mean Business Coalition.
We were also joined by CDP’s Chief Executive Paul Simpson, Chief Impact Officer Nicolette Bartlett, Global Director of Forests and Land Thomas Maddox and Global Lead - Net Zero, Capital Markets Mahesh Roy. Here are our experts’ key takeaways:
COP26: a tale of two stories
Anyone looking at analyses of the outcomes of COP26 in recent weeks will have largely seen two diverging narratives: one of success and one of failure. The truth, CDP’s Paul Simpson said, lies across them both. Some good progress was made at COP26. The first test of the Paris Agreement “ratchet mechanism” saw updated Nationally Determined Contributions (NDCs), bringing our trajectory down to 2.4°C of warming. Whilst NDCs - national emission reduction targets - remain insufficient to limit warming to 1.5°C, countries have been asked to strengthen them again by the end of 2022 – a much shorter timeframe than the five years that was required previously. Backed by considerable corporate and governmental commitments, the Glasgow Climate Pact provides an important baseline for rapid action. The goal of 1.5°C remains alive, but in the words of Nick Baker, “its pulse is weak”.
The momentum of corporate action
An undeniable takeaway from COP26 is that the role of the real economy – companies, investors, financial institutions – has gained increasing prominence. Governments can’t achieve 1.5°C alone. All economic actors must act now to deliver on the commitments made in Glasgow.
Many are already acting – nearly 8,000 companies have committed to halving emissions by 2030 through the Race to Zero and over 1,000 to setting science-based targets through the Business Ambition for 1.5 campaign. We saw collaboration across all levels of society - throughout COP26, governments and non-state actors committed to tackling key challenges together.
A breakthrough commitment to end deforestation was announced, with 133 world leaders responsible for around 90% of the world’s forests promising to end and reverse deforestation by 2030, plus 33 financial institutions with $8.7 trillion in assets under management, committed to tackle deforestation this decade. 450 firms controlling around 40% of global assets announced that they would align themselves with the Paris Agreement 1.5°C, potentially unlocking trillions of private capital funds to the green transition.
Non-state actors are key implementers of the Paris Agreement. Whilst momentum is rapidly accelerating amongst them, what will matter most is how, and how fast, their commitments turn into action. So, according to our panellists, what needs to happen now? The integrity of these commitments will be in how they translate into action.
All panellists agreed that investors must urgently decarbonize their portfolios in line with the Paris Agreement. All companies must set science-based 2030 emission reduction targets alongside net-zero 2050 commitments. The Net-Zero Standard recently launched by the Science Based Target initiative (SBTi) provides a credible and independent assessment of corporate net-zero target setting and enables companies to align their near- and long-term climate action with 1.5°C.
More scrutiny and regulation for business is coming
It’s not just about setting targets – CDP’s Nicolette Bartlett welcomed the “real scrutiny” that is set to develop further for real economy actors and national commitments.
Scepticism over corporate net-zero commitments persists, but a series of announcements at COP represents a welcome move from voluntary commitments and initiatives towards non-state action coalescing around common frameworks, regulation and scrutiny.
The UK Government announced that financial institutions and listed companies will be required to publish net-zero climate transition plans from 2023. We can expect that more nations and regions will follow suit, as governments, investors and consumers push for more scrutiny over corporate commitments.
Climate transition plans are a vital mechanism for corporates to demonstrate to investors and other stakeholders that not only have they developed a strategy that will keep their business on the pathway to 1.5°C, but it will remain relevant and profitable in a net-zero economy. But transition plans can’t just be written and forgotten about – progress needs to be disclosed so it can be tracked and held to account. Clear and regular disclosure allows a company to show stakeholders that it is delivering on its commitments.
From 2022, companies can disclose their plans through CDP. Next year, we will be collecting more granular, forward-looking metrics to help assess plans and track the transition. As an initial step in gathering consensus behind transition plans, CDP has produced a discussion paper on climate transition plans. This publication aims to offer a definition for climate transition plans, principles to factor in whilst establishing a plan, and some of the key metrics to include
Launched at COP26, the International Sustainability Standards Board (ISSB) will be a critical addition to existing financial reporting standards, helping to increase transparency and accountability within global financial markets. This announcement, alongside the recent wave of global support for mandatory disclosure regulation, shows that companies and financial institutions that are not yet disclosing their environmental data are becoming increasingly out of touch with reality.
Put transparency and accountability at the heart of your journey
Whilst acting now will help companies get ahead of regulation, our experts’ key advice to companies is that putting transparency and accountability at the heart of your journey to net-zero will only reap positive rewards.
Accountability needs to start at the top. “If you’re only starting now”, says Nicolette Bartlett, “move as quickly as possible to make sustainability one of your top three issues at board level. Oversight and leadership must be at the heart of your strategy.” Mahesh Roy agrees – many pledges are currently voluntary, but the rate of change is increasing. If it’s not happening at board level, you risk being left behind.
It’s also about managing risk, says Tom Rivett Carnac. Telling stories that are authentic to your transition – positives and negatives – is a risk mitigation strategy. “Use the power you’ve been given responsibly”, We Mean Business Coalition’s Sophie Punte says. “You must show your stakeholders, from investors to consumers, that you really mean business.”
Address nature and climate together, now
For the first time, nature had a seat at the table at the historically climate-centric COP. CDP’s Thomas Maddox told us of the increased recognition that nature is at once a source of emissions, a major sink for carbon and a means of resilience. It’s clear for non-state actors that nature needs to be part of their strategies. Companies must now act to integrate nature-related actions into their business strategies. Unfortunately, we are still a long way from where we need to be to meet the scale of the challenges we are facing. Only 15% of companies disclosing through CDP’s questionnaires are implementing any nature-related actions.
There are very real steps companies can and should take now. Companies must assess impacts and dependencies on nature to ensure they are committing and acting on the most material ones. Ambitious goals and science-based targets must be set. Companies must develop robust environmental strategies with science-based indicators and metrics to measure the effectiveness of the interventions made. Once a plan is in place, companies must ensure transparency and accountability by disclosing through CDP and tracking their progress.