Are you eagerly awaiting the United Nation’s Climate Change Conference 2021 (COP26)? Know that the UN race to zero has already begun. Firms across the world have taken climate change seriously and are actively enhancing their efforts at reporting their carbon footprints, boosting renewable energy use, and committing to net-zero carbon targets with actionable climate change strategy.
COP26 will only heighten the urgency around climate change action, prompting world leaders to adopt regulations that mitigate climate risk. It is high time that every organization examines its business goals and competitively positions itself in a market with dynamic stakeholder needs and fragmented regulations.
Read ahead as we take you through the climate change strategies that will make your business a proactive player in the changing economy. Getting acquainted with the goals of COP26 is the first step in assessing the direction that your business’ climate change strategy should embrace.
Four Goals of COP26 that Will Determine the Impact of Climate Change on Businesses
COP26, the 26th meeting of the Conference of the Parties, will be attended by countries that are signatories of the United Nations Framework Convention on Climate Change (UNFCCC). The Conference is all set to revisit the Paris Agreement signed at COP21, establishing an international consensus to tackle climate change on a global scale.
Converting climate commitments to actionable plans, COP26 will promote the following goals to accelerate the journey to net-zero carbon emissions.
1. Secure Global Net-Zero by Mid-Century
Net-zero indicates an atmospheric equilibrium where carbon emissions generated will be less than or equal to those that are removed from the atmosphere. By achieving net-zero, the world will be able to limit global warming temperature rise to 1.5 degrees.
COP26 will ambitiously pursue net-zero, pushing actionable plans for businesses in three key areas.
Given that coal accounts for a quarter of global greenhouse gas (GHG) emissions, the focus is on fast-tracking plans to phase out coal power in developed countries by 2030. On the other hand, developing countries will receive support to accelerate their journeys to achieve complete clean energy economies by 2040.
Climate action groups like EP100 are leading the transition to renewable energy by actively roping in global businesses to commit to net-zero. Learn more about how businesses are reducing GHG emissions.
Protecting and Restoring Forests
Forest preservation will be promoted by creating systems that reward agricultural producers who adopt sustainable practices. These forests are vital assets in removing carbon from the air and enabling a smooth transition to net-zero.
Stakeholders, including large and small businesses, are encouraged to contribute to the conversation around forest protection through the COP26 Forest, Agriculture, and Commodity Trade (FACT) Dialogue.
Transitioning to Zero Emission Vehicles
To reduce carbon footprint in the transport sector, vehicle manufacturers will be encouraged to show leadership and produce only zero emission vehicles by 2035. To sustain demand, initiatives like EV100 are encouraging companies across the globe to convert their fleets to 100% zero emission electric vehicles.
2. Adapt to Protect Communities and Natural Habitats
At the heart of climate change strategies are the people and communities that will to be directly affected. COP26 aims at channeling finances to build infrastructure, enhance early warning systems, and structure flood defenses to prevent livelihood and habitat loss.
Countries will be encouraged to produce an ‘Adaptation Communication’ plan to successfully report their efforts at protecting communities and identifying areas where they could use assistance. To manage forecasted droughts and infrastructure loss, global collaborations will prove especially important.
Businesses should pay special attention as this area will bring out opportunities to protect their supply chains and prevent any vulnerabilities in the future.
3. Mobilize & Engage Finance in Your Climate Change Strategy
Restructuring the world to accommodate positive climate change initiatives involves allocating funds towards efficient net-zero economic frameworks. At the center of this goal is the COP26 Private Finance Hub, under Mark Carney, that will work towards integrating climate change issues into financial decisions at all levels.
Here are the key areas under private finance that COP26 is likely to impact.
Chaired by Mark Carney, the final report of the Task Force on Climate-Related Financial Disclosures suggests that companies should include climate-related financial disclosures in their annual financial filings.
The buzz is that such reporting may become mandatory, seen recently within the UK Taxonomy Delegated Act criteria, as financial regulators and central banks set best-practice standards. Financial leaders and CFOs should take special note of this COP26 goal and begin initiating reporting frameworks to accommodate such change.
COP26 will put stress tests in motion where regulatory bodies and financial standard-setters like the International Monetary Fund (IMF) will assess just how resilient companies are to climate risks. This initiative suggests that companies and investors will have to allocate capital to better manage climate risks and align portfolios towards net-zero commitments.
As companies successfully transition to net-zero, COP26 will put into action plans to mobilize private finance into developing economies and emerging markets. Development banks and other financial institutions will connect investable net-zero projects in developing countries to globally available private finance.
This is likely to create a push for setting up voluntary carbon markets, further driving investments. It is hence an exciting time for firms to integrate global investments into their climate change strategies.
4. Collaborate for Effective Climate Change Strategy
At COP26, leaders will focus on international collaborations to drive ambition and establish successful carbon markets with a practical carbon credit system. All stakeholders will be expected to report net-zero efforts, so that the world can learn and collectively progress.
The above goals will influence climate change trends going forward. Here’s how businesses can promptly take note and incorporate the COP26 goals across their climate change strategies!
5 Opportunities for Your Business Climate Change Strategy Ahead of COP26
COP26 will amplify the global discourse around climate change, making it the perfect time for businesses to shape strategies that merge climate action with corporate growth. Read ahead as we outline five climate change strategies for your business.
1. Harness Climate Change Strategy to Create Competitive Advantage
COP26 will encourage governments across continents to set regulations that mitigate the effect of climate change. Consequently, businesses emitting carbon carelessly will face both monetary and social repercussions. Most businesses are already equipped to act on their obligation towards the environment through their Corporate Social Responsibility (CSR) initiatives.
It is ripe time for your business to channel CSR activities into business operations and gain competitive advantage by making an impact at every level of the organization. You can do this by integrating climate change with the financial operations of your business and enable long-term financial stability.
At the Financial Executives International (FEI) Canada 2017 Annual Conference, Chartered Professional Accountant (CPA) Canada and FEI discussed the implications of climate change on Canadian businesses. The discussion emerged from a survey that studied the perception of climate change as a business issue.
Following the conference, 52% of the survey participants agreed that climate change is one of the top five issues for their business. Businesses will now need to create competitive advantage by asking pressing questions that integrate financial operations with climate change adaptation and mitigation.
Businesses can stay ahead of the game by understanding how carbon pricing can affect expenditures, revenues, and cash-flows, and how climate change can affect a company’s present and future financial condition and value-creation process. In addition to these questions, CPA Canada has put together a list of questions that directors can ask to shift focus to climate change as a business issue.
These questions focus on areas across financial impact, reporting, and business strategy, among others, so that businesses can take a holistic approach towards climate change as a business issue.
2. Adopt Climate Change Strategy to Predict and Mitigate Risks Ahead of Time
Better predictions and forecasts are known to enhance strategic decisions and boost business in the long run. Climate change will bring with it flooding, droughts, and natural disasters of varying scales across global locations where companies have operations.
Firms will have to face the risks of supply-chain breakdown, infrastructure destruction, and consequential economic uncertainty. For instance, increased droughts may mean water supply shortage and employee migrations. Similarly, increased precipitation may result in a simultaneous increase in power outages as well as limited risk coverage options by insurers.
Hence, it is indispensable to climate change strategy that companies identify areas at risk and collaborate with governments and other stakeholders to preserve thriving business environments, assist local communities in battling climate change, and enhance business reputation.
Companies should pay keen attention to the way in which COP26 will shape the conversation around the protection of natural habitats and communities as it is likely to open multiple doors for collaborative action. By taking systemic steps to mitigate climate risks, companies enter a win-win situation.
Opportunities abound, and businesses can innovate, use alternative materials, and engage communities differently to promote real change at the grassroots level. In cases where climate change demands relocation of facilities, early predictions can allow companies to transition in smooth and responsible ways, well ahead of time.
3. Meet Stakeholder Expectations with Transparent Reporting
With increasing environmental consciousness, stakeholders expect companies to be transparent and accountable about their greenhouse gas emissions. Who are these stakeholders and what do they expect? First, NGOs and capital markets demand that companies report their emissions, track progress, and set actionable goals towards achieving net-zero and better energy efficiency.
Companies that fail to track and report their footprints will naturally come across as organizations that have high emissions. Hence, responsible reporting and smart environmental and sustainable management programs are poised to become important pillars of positive brand image.
Sustainability reporting is increasingly growing with the Governance & Accountability Institute (G&A Institute) suggesting that 65% of the companies in the Russel 1000 Index published sustainability reports in 2019. The number grew from 60% in 2018. CO26 is likely to drive this trend further and it is best for your organization to hop on!
By channeling reporting into Public Relations campaigns, your organization can enhance its climate change strategy, boost reputation, attract customers, and shape brand image.
Second, adopting climate change strategies is also likely to attract talented employees and retain them. Research suggests that 73% of workers wanted their workplaces to improve sustainability policy in 2019. COP26 is will only increase this awareness and boost climate change consciousness as a driver of positive workplace experience, now more than ever!
4. Shape Climate Change Strategy to Build Resiliency in the Face of Changing Policy
COP26 will set the larger framework for global climate change decisions and organizations should pay specific attention to the way in which countries negotiate carbon taxes and tariffs. You can do your homework by understanding cap and trade carbon markets and Renewable Energy Certificates (RECs). These terms will get you acquainted with climate change regulations and opportunities ahead of COP26.
To stay ahead of the game, businesses should also stay on top of the buzz around climate activism and the demands of academic climate action groups. These are early indicators of the direction that climate policy will take.
For instance, in August 2021, the Inter-governmental Panel on Climate Change (IPCC), in its latest Scientific Assessment Report (AR6), suggested that temperatures will rise by 1.5 degrees in the coming two decades. The report is likely to put pressure on countries attending COP26 to take drastic measures to set carbon budgets, reduce coal usage, and boost renewable energy use.
Additionally, companies operating in multiple global localities should be aware that each jurisdiction will impose climate regulations that cater to local urgencies. Hence, your organization’s climate change strategy will have to stay on top of a fragmented regulatory world to build resiliency.
5. Take Advantage of Net-Zero Private Financing Goals of COP26
With COP26 pushing private financing and incentivizing whole economies to transition to net-zero, businesses should prepare to identify advantageous investment opportunities. COP26 is likely to offer visibility into the tools and products that the financial sector will develop to manage risks better.
For instance, the conference will give businesses a peak into the frameworks that will be created to measure the alignment of investment portfolios with net-zero targets. Businesses should note that as consumers get acquainted with these metrics, green companies are likely to attract growing investments.
It won’t be too long before every financial decision will have to take climate change into account. Once your firm taps its own net-zero potential, opportunities to look outward abound. COP26 will announce a new crop of capital allocations directed at bringing developing countries and emerging markets on the same page as the developed world.
As international policy dialogues pick up and public-private partnerships are shaped, the Conference will aim to directly engage CEOs and governments. As a part of its climate change strategy, your business can claim a piece of the pie and look for collaborative opportunities for innovative investments.
The initiative will only add to your brownie points, enhance your climate change strategy, making your organization more attractive to stakeholders in a greener economy.
Shaping Your Climate Change Strategy
COP26 is only the beginning of policy discussions that will fast-track climate change action and shape the global economy. Businesses should continuously shape their climate change strategy and stay ahead of dynamic regulations, as world leaders negotiate their stance on carbon taxes and tariffs.
Hence, firms should map their carbon footprints, monitor value chain emissions, integrate climate change into business processes, and emerge as influencers in meeting sustainable development goals.
Get proactive now and quit sitting on the sidelines of climate change action. To learn more about efficiently mapping your firm’s carbon footprint and meeting net-zero goals, explore Benchmark ESG’s Sustainability Management Software now!