COP26 saw an unprecedented surge in corporate climate pledges, particularly on nature and emissions in hard to abate sectors, but with rising concern about the credibility and effectiveness of private sector commitments, the focus going forward will be holding their feet to the fire. Terry Slavin reports
After two years of doing business via Zoom calls, COP26 was like Davos on steroids, with mask-wearing B team CEOs rubbing elbows with A-list celebrities, politicians and activists, all parroting the official mantra of the need to “keep 1.5 alive”.
In the blue zone at COP26, the locus of corporate activity was the Climate Pledge theatre of the We Mean Business Coalition, which groups the world’s biggest business-focused climate non-profit organisations: BSR, CDP, Ceres, CLG Europe, Climate Group, the B Team and WBCSD.
The Science Based Targets initiative (SBTi) announced that more than 1,045 companies had set 1.5C-aligned SBTs, up from 28 in 2019, while Amazon and Global Optimism said more than 200 companies have committed to The Climate Pledge, committing to reach net zero by 2040, a doubling in the past six months.
We don’t believe banks will suddenly put trillions of dollars on the table for climate action
Besides launching their own bigger and better pledges to get to net zero, corporates threw their weight behind ambitious multi-stakeholder commitments to tackle global methane emissions and reduce deforestation, as well as a flurry of new partnerships with governments to accelerate decarbonisation in various modes of transport and in the built environment.
The mood of self-congratulation was buoyed by former Bank of England governor Mark Carney’s announcement that private sector finance players with assets totalling $130tn had joined the Glasgow Financial Alliance for Net Zero, committing them to decarbonise their portfolios by 2050 – although ShareAction pointed out that asset managers signed up to GFANZ had so far aligned only 35% of their assets with net-zero goals.
It was clear from the thousands of young people and activists from developing countries angrily chanting “no more blah blah blah” on the fringes of the conference, that pledges aren’t going to cut it any more.
As young Ugandan activist Vanessa Nakate told the COP26 plenary: “We don’t believe banks will suddenly put trillions of dollars on the table for climate action if rich countries have struggled since 2009 to raise $100bn for the world’s most vulnerable countries.”
And it’s not just civil society that is sceptical. According to a new survey by Edelman, 79% of institutional investors globally are worried that companies are not effectively executing on their net-zero pledges, with concern highest in the U.S., where 92% of investors are either very or somewhat concerned.
Another survey, by Accenture and the UN Global Compact, finds that only 2% of companies with net-zero targets have validated them with the SBTi in line with a 1.5C warming trajectory.
Keeping temperature rises to within 1.5C doesn’t depend on what happens in 2050, but what happens in the next eight years
In a press conference at the end of the week, the UN general-secretary António Guterres said the UN would establish an expert group to propose clear standards to measure and analyse net-zero commitments from companies. “There’s a deficit of credibility, and surplus of confusion over emissions reductions and net-zero targets.”
Nigel Topping, the UN’s High-Level Champion, agreed that the focus now has to move to holding companies accountable for their promises. “Turning today’s momentum into implementation is now absolutely the order of the day.”
This was echoed by Alberto Carrillo Pineda, the SBTi’s managing director, in an interview. While it was encouraging to see that 1,045 companies, representing $23tn in capitalisation, have set climate targets aligned with the 1.5C target, there will have to be exponential growth in numbers of companies joining, he said. Recent research by CDP and the UN Global Compact found that four out of the seven leading stock indices in G7 countries are on dangerous temperature pathways of 3C or above.
From next July SBTi will only accept companies that are aligned with 1.5C, something that commits them to deep decarbonisation of 90%-95% by 2050, and, critically, to set near-term targets for action. "Keeping within 1.5C “doesn’t depend on what happens in 2050, but what happens in the next eight years,” Pineda said.
This is codified in the SBTI’s new net-zero standard, which also includes requirements for companies to disclose their emissions on an annual basis, and review them every five years. Pineda described the net-zero standard as “the first part in a chain of accountability” that is needed to hold companies to their commitments.
Along with making companies be transparent about progress, SBTi will start working on a mechanism for third-party monitoring and verification next year, its coffers replenished by $37m in grants announced at COP26 by the Bezos Earth Fund, IKEA Foundation and Laudes Foundation.
It’s significant progress for them to make net-zero commitments, even if we have to go through a robust process to ensure they mean a real net zero
At COP26, SBTi also launched a draft consultation on a separate net-zero standard for the financial sector, to hold GFANZ members to their commitments to mobilise trillions of dollars for the energy transition. “There’s been some healthy scepticism from civil society that many financial institutions still have new investments in fossil fuel infrastructure, which is incompatible with their net zero commitments,” Pineda said. “But we need to acknowledge that it’s significant progress for them to make net-zero commitments, even if we have to go through a robust process to ensure they mean a real net zero.”
For Pineda the other significant development in Glasgow was the launch of the First Movers coalition, a partnership between the U.S. State Department and the World Economic Forum to create a platform for companies to use their global purchasing power to jumpstart a market for nascent decarbonisation technologies in seven sectors: aviation, shipping, trucking, steel, chemicals, aluminium, and concrete. (See ‘Here comes the cavalry’ as brands vow to help accelerate climate solutions in heavy industry)
“That’s critical to accelerating investments in new technologies, and especially if it’s done in a way that doesn’t undermine the climate targets of the companies that are participating in this coalition,” Pineda said.
In an interview earlier in the week, Maria Mendiluce, the soft-spoken CEO of We Mean Business, said the most significant development at COP26 had so far been the launch of the International Sustainability Standards Board (ISSB), which aims to cut through the confusion of the more than 600 ESG reporting provisions that exist globally, many of them having differing interpretations of sustainability.
Headquartered in Frankfurt, the new board aims to create a comprehensive global baseline of sustainability-related disclosure standards.
“It’s fantastic news,” Mendiluce said. “Business wants homogeneous regulation. The fact that they can have a standard that is internationally approved means they can report following the same standard, they can be compared, they don’t have to have different reports for different geographies.”
But an even bigger task will be helping companies credibly meet the flurry of pledges made at COP26 to reduce their nature-related risk.
Food and agriculture is the hardest to abate sector, because it involves thousands upon thousands of farmers
Alongside the commitment by over 100 world leaders to halt and reverse forest loss and land degradation by 2030, 33 financial institutions said they would work to phase out deforestation impacts across supply chains for palm oil, soy, beef, and pulp and paper by 2025, and 27 UK-based brands signed up to the new UK Soy Manifesto, committing to buy only soya that has been grown without deforestation or the removal of native vegetation by 2025.
Meanwhile, 10 of the biggest agricultural trading companies, which supply the big brands, promised to publish a roadmap on how to align their supply chains with the 1.5C target by next year’s COP in Egypt.
The credibility gap surrounding nature-related investment is even bigger than it is for climate, though. A report by CDP and IUCN showed that fewer than 1% (0.5%) of the companies that disclosed data to CDP in 2020 even identified nature-related risks, while a new report by Accenture and the Global Compact found that while 46% of CEOs globally have begun exploring nature-based solutions, only 7% are utilising them at an advanced level.
Mendiluce acknowledged that nature “hasn’t been at the forefront” of We Mean Business’s work, but companies, particularly in the fast-moving consumer goods sector, are now having to grapple with their nature impacts as they take responsibility for their scope 3 emissions. Unlike greenhouse gas emissions, nature impacts are highly localised, and there is a dearth of commonly agreed metrics.
“I used to think the hard-to-abate sectors were in heavy industry, but we’ve done analysis with the Mission Possible Partnership, and it is possible to decarbonise industry,” Mendiluce said. “Food and agriculture is the hardest to abate sector, because it involves thousands upon thousands of farmers, the technologies are not there, and it’s expensive. We need to put a spotlight on this so that the actors can start to find solutions, as we’ve done with other sectors.”
Providing a framework for companies to manage and disclose their nature-related risk is the aim of the Taskforce on Nature-related Financial Disclosures. The TNFD, which is backed by Global Canopy and UNEP FI, kicked off its work in October, testing an exploratory disclosure framework for companies operating or investing in soy supply chains with McDonald’s, Rabobank, Santander, Tesco and Vitasoy.
If we focus on climate, without also focusing on nature and biodiversity, we’ll damage the very tools that will help us to get to net zero
David Craig, co-chairman of the Taskforce on Climate Related Financial Disclosures, told a panel on green finance at COP26 that although TNFD was several years behind TCFD, it was moving quickly to catch up, with the aim of launching a framework in 2023. The TCFD will inform standards bodies like the new ISSB, so companies will have a standardised way to report on their nature impact alongside climate.
“We need to understand how to identify, manage and disclose nature-related risk and redirect capital so it’s in a nature-positive, not a nature-negative direction,” Craig said. “We all know that natural systems – not just forests but marine – absorb carbon far more efficiently than the mechanical systems that are out there. If we just focus on climate alone, without also focusing on nature and biodiversity, we’ll damage the very tools that will help us to get to net zero.” (See ‘Nature loss is as big a business risk as climate change. We must tackle both with equal urgency’)
This was echoed by James Mansfield, co-founder of Finance Earth, in a panel discussion at the UK government's climate pavillion: “There’s an amazing amount of energy at the moment, both in the public and private sector and NGO communities around how we find solutions to these problems (like deforestation). A lot of the models in the Global South have been driven by carbon markets… but with the TNFD there’s a recognition that models beyond carbon are just as important. If we are going to make these systems truly sustainable, we need to unlock both.”
This article is part of the December 2021 issue of the Sustainable Business Review. See also: