Executives who gathered at COP26 in Glasgow said the climate-change summit brought clarity on some key issues, even as questions remain about how the promises will be put into action.
This weekend, after two weeks of negotiations at the United Nations summit, more than 190 countries reached a deal that aims to accelerate cuts in greenhouse-gas-emissions across the world.
As well as a forum for political horse-trading, COP26 functioned as a giant trade show that gave business leaders an opportunity to discuss the climate agenda with their peers. Some said they were struck by a feeling of common purpose among delegates, even as they acknowledged the tough political compromises that were reflected in the deal text itself.
“I am convinced more than ever that leading in this regard is a huge economic advantage for those who choose to do so,” said
chief executive of New Jersey-based energy company Public Service Enterprise Group Inc., after attending the summit.
Here are business leaders’ key takeaways from the conference.
Many executives said a positive outcome of the conference was an agreement between governments on rules for how countries, and companies, can trade carbon-emissions credits across borders. The rules, part of Article 6 of the Paris accord, were a key piece of unfinished business for negotiators in Glasgow.
chief executive of France-based building-materials manufacturer
said a resolution on Article 6 “was not a done deal” ahead of COP26 and brought much-needed clarity.
Analysts have reservations about the details. Gilles Dufrasne of think tank Carbon Market Watch said the inclusion in the setup of credits from a defunct international trading system was “a travesty that will dilute and scupper current climate ambitions.” Still, he said the deal will make it harder for companies and countries to game the trading system by double-counting emissions reductions.
An early draft of the Glasgow agreement called on companies to “accelerate…the phasing out of coal and subsidies for fossil fuels.” As the text was revised, qualifiers were introduced, and the final version referred to “the phase down of unabated coal power” and “inefficient” fossil-fuel subsidies. Nevertheless, putting in language on fossil fuels marked a shift.
“Of course the phase-down wording is a disappointment, but overall it’s still a step in the right direction,” said
chief executive of Sweden-based truck maker Scania AB.
Commitments to crack down on coal use and methane emissions “should send a clear message to heavy emitters that it’s time to get their house in order,” said Laura Hillis, director of corporate engagement at the Investor Group on Climate Change, an organization of Australian and New Zealand institutional investors. Still, industry pushback in the U.S. to planned methane regulations may test the Biden administration’s resolve.
Shortly before the summit, Netherlands-based ABP, one of the world’s largest pension funds, said it would divest itself of its more than €15 billion, equivalent to $17 billion, of oil and gas holdings, saying it saw “insufficient opportunity for us as a shareholder to push for the necessary, significant acceleration of the energy transition at these companies.” The abrupt move was a talking point at COP26, raising the prospect of further drastic action by shareholders.
Investors at the conference largely agreed that the best way to get companies to reduce their carbon emissions is by owning their shares and pushing them to change their ways, but some observers said they should be doing more. “Many investors have been using ‘stewardship’ as an excuse for business-as-usual investing. However, very few are practicing meaningful engagement,” said Isobel Mitchell, research and engagement manager at ShareAction, a nonprofit group.
As the official U.N. negotiations continued, voluntary deals were announced by groups of companies and countries, including the financial-sector coalition convened by former central banker Mark Carney. Analysts at Morgan Stanley said the conference showed that the private sector is embracing decarbonization, even though “much of what emerged from COP26 was expected, already announced, or will not have a significant impact.”
Meanwhile, some initiatives got more traction than others. Scania endorsed a pledge to slash emissions from the logistics sector. “Was I surprised that there were not more of our peers signing up? Yes, I was, to be honest,” Mr. Levin said.
A tailwind for wind and solar
“At least three elements of the final agreement could speed up the deployment of renewables,” said
chief executive of Enel Green Power, a unit of Italian power company
SpA, even though he said he wished the agreement had been bolder and provided more support to developing countries. He pointed to the coal “phase down,” the accelerated timeline for global emission reduction targets, and countries’ commitment to strengthening their decarbonization plans.
Some executives said COP26 brought reassuring clarity from policy makers about their plans to speed the energy transition along.
chief executive of Dublin-based green-energy developer Mainstream Renewable Power Ltd., said after COP26 there is “greater visibility and understanding of where investment…needs to be routed, such as into grids, [electric vehicle] networks and other infrastructure.”
One of the industry announcements timed to coincide with COP26 was a deal aimed at combining several sustainability reporting standards under the aegis of the foundation that oversees the International Accounting Standards Board. The move suggests there is momentum behind the idea that the current multitude of reporting standards for reporting carbon emissions and other environmental, social and governance data should be harmonized to make it easier to compare companies’ performance.
Richard Manley, head of sustainable investing at the Canada Pension Plan Investment Board, called the move “a very exciting outcome for consolidating reporting standards as we move forward.” He said some consolidation had been expected, but the scope of the tie-up was a surprise.
Bracing for physical risks
Many countries committed to faster emissions cuts before or during the Glasgow conference, but scientists said the promised commitments weren’t ambitious enough to limit warming to 1.5 degrees Celsius above preindustrial levels by the end of the century. The agreement struck by leaders in Glasgow says governments should pledge bigger emissions cuts by the end of next year—an acknowledgment that current targets fall substantially short of what is required under the terms of the Paris agreement.
“Investors thus may need to increasingly focus on the physical risks of climate change, for example the impact of extreme weather on agriculture, infrastructure and productivity,” said analysts at Morgan Stanley.
—Dieter Holger contributed to this article.
Write to Ed Ballard at [email protected]
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