COP26, the United Nations Climate Change Conference, will take place in Glasgow between 31 October and 12 November. The event marks the first five-year review since the Paris Climate Agreement, with the aim of re-evaluating the Nationally Determined Contributions (NDCs) against recent climate science and raising NDC ambitions to align them with the targets agreed in Paris.
The current pledges put the world on a trajectory for 2.7 degrees warming, far from the well-below 2 degrees or 1.5 degrees agreed in Paris. Increasing ambitions to align with this level is unlikely at this stage, but an agreement putting us close to 2 degrees would serve to “keep 1.5 alive” and drive significant investments in the transition.
Success or failure of the conference will not be defined by a single landmark agreement, but rather by a multitude of parallel actions.
Defining success: “Keeping 1.5 alive”
COP26 President Alok Sharma has called “keeping 1.5 alive” the primary objective of COP26. The current NDCs would, in fact, lead us to warming of 2.7 degrees by the end of the century (UN, 2021), with emissions projected to increase 16% by 2030 relative to 2010 levels, compared to the 45% emissions reduction by 2030 required to keep a 1.5 degrees pathway in reach. All countries are called upon to contribute to the four official goals of the conference: raising governments’ ambitions; increasing adaptation efforts and protecting natural habitats; mobilising finance; and working together to finalise the Paris Rulebook.
Source: UN 2021, IPCC 2021
A first key challenge for COP will be to agree on a common target. The EU, the UK and a group of vulnerable countries are pushing to find a consensus around a 1.5 degrees Celsius target, the warming level identified by the recent IPCC review as relatively safe. China and other large emitters, on the other hand, want to stick to the original Paris agreed target and are reluctant to raise the ambition (the Paris Agreement targeted “well below 2 degrees”, with “efforts” to limit the temperature increase to 1.5 degrees).
A further challenge is posed by the current energy crisis, a stark reminder of just how dependent the world still is on fossil fuels. This is likely, in our view, to polarise the debate, with the crisis being used as an argument for both speeding up and slowing down the transition.
Let’s all of us, together, make COP26 the moment we put the world on track to protect people, nature and the planet, and, really importantly, keep 1.5 degrees alive.
COP26 President-Designate Alok Sharma
Mobilising international finance
The mobilisation of climate finance for the green transition will be critical for developing countries to adhere to the 1.5 degrees pledge. In 2009, developed countries committed to mobilising USD 100bn annually by 2020 to support developing countries. OECD figures show that efforts made prior to the pandemic petered out, and only an estimated USD 80bn was mobilised in 2019. Based on GDP share and cumulative emissions, the largest contributor should be the US, but so far it has contributed less than France, Germany, the UK or Japan and is thus the main country responsible for the funding gap. Biden has now committed to doubling climate finance to more than USD 11bn annually by 2024. Although this may not entirely close the gap, it is an important step in that direction.
The Glasgow Financial Alliance for Net Zero (GFANZ)
Further increasing the focus on the mobilisation of finance, the Glasgow Financial Alliance for Net Zero (GFANZ), recently launched by a coalition of leading financial institutions, aims to harmonise net-zero efforts and initiatives across the industry. Three of the sub-sector initiatives aimed at portfolio alignment and transition: the Net-Zero Banking Alliance, the Net Zero Asset Managers initiative, and the Net-Zero Asset Owner Alliance are likely to prove particularly instrumental in driving both narrative and action around the decarbonisation of investment and lending portfolios. We expect these initiatives to gain further traction over the course of COP26, and for implications for corporates to materialise shortly after. This may include increased scrutiny of emissions targets, transition plans and enhanced reporting requirements from the financial industry.
We expect COP26 to further catalyse companies’ focus on climate and their commitments to decarbonisation. Corporate disclosure and comparability, however, are still important barriers in many parts of the world. In June, the G7 agreed to mandate climate-related financial reporting for companies, fuelling hopes for a global agreement in Glasgow. The Task Force on Climate-Related Financial Disclosures (TCFD) should be the core of the new standard, and the IFRS foundation plans to launch a body dedicated to developing a global baseline sustainability reporting standard.
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