The climate conference laid out the global corporate framework for the next 12 months. But what was Agreed at COP26 and does it mean for businesses precisely? For every business, COP26 was a game changer. Here are the top elements to include within your corporate strategy over the next 12 months.
The BBC reports that for the first time at a COP conference, there was an explicit plan to reduce use of coal – which is responsible for 40% of annual CO2 emissions. However, countries only agreed a weaker commitment to phase down rather than phase out coal after a late intervention by China and India.
For businesses, this is a key top-level intervention. It means that the goalposts on global exclusion of fossil fuels from the power mix have been set. Every expectation is that both the wording and the targets on this will be strengthened and made more forceful in 2023.
Therefore, any businesses that fail to set sustainability strategies outlining their rapid transition off fossil fuels are going to face a variety of pressures. These will range from simple price rises as fossil fuels become legacy and costs increase, to hastening green taxation on firms that continue to power estates, production and operations from oil-based sources.
Additionally, pressure is going to hike from investors, partners and purchasers seeking assurance that environmental social and governance (ESG) criteria are where they need to be on power. Companies will have to prove they are doing the green thing.
Moreover, corporate social responsibility (CSR) metrics will add further impetus to the green power shift. The public’s understanding and demand for CSR transparency is only growing and companies need more than a tick-box attitude.
The correct strategies won’t just tick such boxes on transitioning off fossil fuels. They will make plain the necessity for pace and scale on renewables, solar power and responsive grid technologies and will lay out detailed plans for how firms intend to develop and advance their activities in this space.
Money and green finance
Another vital element stemming from COP26 covers how financial organisations controlling $130tn agreed to back clean technology, such as renewable energy and direct finance away from fossil fuel-burning industries. The initiative is an attempt to involve private companies in meeting Net Zero targets.
However, some environmental organisations have said without a greater commitment to ending support for fossil fuels, this could be little more than a PR exercise.
In practical terms, this being only PR is doubtful. There is a fast-growing understanding within financial circles that continuing to pump money into unsustainable firms offers big risks both against stranded assets and against aforementioned ESG and CSR criteria.
So, the future for any forward-thinking corporate involves understanding that sustainability strategy must devote ample time to understanding the new green money of tomorrow.
For example, achieving loans on new products, operations, services and expansion is going to become increasingly difficult unless strong due diligence has been carried out surrounding their expected carbon impacts and the necessary steps taken to mitigate these.
Without this strategy in place, lends will be harder to come by and firms will lose investors to more progressive companies placing COP26 aims at the very heart of their futureproofed concepts on growth.
A true delivery of Net Zero is coming
McKinsey writes that from COP26, momentum has shifted and Net Zero commitments are now the norm for corporates.
But the actual practice of Net Zero itself remains far more challenging. Globally, whilst an understanding of what Net Zero is has widened, there remain far too many opportunities for firms to use tick box criteria against Net Zero, or to pick and choose the metrics they use to greenwash they are serious about compliance.
The most progressive companies will take the approach that Net Zero governs their every operation over the next 25 years at least. They will have dedicated staff and teams onboard whose task it is to shake down the organisation from top to bottom and realign, remove or reconfigure elements and practices that don’t sit squarely within a zero-carbon agenda.
Net Zero is, unfortunately, necessarily complex. It is not something that should be outsourced to consultancies nor something which can be seen as an add on to corporate strategy.
Rather, the concept and its delivery must take centre stage at board meetings and at C suite level with dedicated practitioners embedded within organisations.