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Business is the game-changer at COP26 in Glasgow

The 2015 Paris climate conference mostly involved governments pushing businesses to cut emissions. In Glasgow, businesses are the ones pushing governments to act.

From a low base, expectations for the COP26 summit that kicked off this week have been boosted by a flurry of promises. While skeptics grumbled that some were recycled commitments, by Friday the International Energy Agency said that, if delivered, the updated pledges would likely limit global warming to below 2 degrees Celsius—the first time it has fallen below that benchmark. New national commitments from China and India were central to the new IEA analysis, even if they disappointed some.

Government negotiations continue, yet the real game-changer has arguably been corporate muscle. “The story of this COP is that the private sector has stepped up,” said Carol Browner, a lawyer at Covington and former director of the White House office of energy and climate change policy for former President Barack Obama. She stressed the role of the financial sector in particular.

Exhibit A is the $130 trillion in private capital promised for the energy transition by the Glasgow Financial Alliance for Net Zero, a group of 450 financial institutions from 45 countries. However, the associated plan to reform the financial system warns that governments need to provide the “commitment, clarity, and coordination required to accelerate progress.”

Regulations are often disparaged as red tape that slows innovation. But decarbonizing economies requires massive changes that create great uncertainty about future markets and industries. Businesses and investors, many with newly minted net-zero commitments, need governments to create a plan and some rules to reduce the unknowns.

“If there is a framework and pathway that shows how the pieces fit together, that is what will really mobilize investment,” says Lucy Heintz of Actis, a veteran energy-transition investor in high-growth markets.

Investors are also pushing governments to set standards for climate reporting and carbon-credit markets. In both areas, a host of voluntary measures have filled the void left by regulators grappling with if and how to set official rules. The resulting Wild West of different benchmarks makes it hard to compare companies and can enable so-called greenwashing—talk not matched by action.

This will change. A new International Sustainability Standards Board, announced this week in Glasgow, expects to publish mandatory climate reporting standards by the end of next year for countries to implement. National negotiators are also working on a carbon accounting rulebook, which together with private initiatives should provide the base needed to scale up the market for carbon credits.

To be sure, most COP26 commitments are pledges, not legal requirements, raising the risk that they aren’t delivered. But as this week’s protests in Glasgow indicate, public pressure is high and scrutiny is rising. The world has changed since 2015: Extreme weather events are shifting public opinion and costing businesses, while renewable energy has become cost competitive. Standardized reporting also should add some teeth.

Governments, industry and the financial sector are mostly now pulling in the same direction, creating a powerful growth platform for companies that are exposed to the right areas. Investors still need to be wary of the waves of hype and disappointment that ripple out from any megatrend, but climate action is increasingly looking like a subject they can’t afford to ignore.

 

This story has been published from a wire agency feed without modifications to the text

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