COP26 reflections | Implications for businesses

The world is at a critical point in the fight against climate change, and COP26 was considered the most significant climate talks since the 2015 Paris Agreement. During the conference, there were notable successes and some setbacks — both have implications for businesses, globally.  

KPMG professionals reflect on the progress made during the climate change conference and provide insights on how to help accelerate toward net zero, together. 

• COP26 made progress toward delivering on the Paris Agreement goals of limiting global warming to ‘well below’ 2 degrees Celsius (C) on pre-industrial levels, but the world is definitely not on track to limit the increase to 1.5C on the basis of plans submitted to date. 
• In a scenario where all the climate pledges announced to date were met in full and on time, then the International Energy Agency (IEA) estimates that global warming could be kept to 1.8C. However, the lack of firm plans for 2030 means the actual increase could be 2.4C.¹  
• These commitments must be delivered upon if these temperature goals are to be achieved. This still represents progress since Paris, where the world was heading for 3C-4C of warming, and COP26 should be seen as part of that ongoing process that started nearly 30 years ago and now plans to continue indefinitely to tackle climate change.  
  
• Over that period, there has been a marked shift from ‘top down’ reliance on governments taking the lead to ‘bottom up’ action by businesses, investors, NGOs and consumers.  
• COP26 has energised a raft of initiatives including: 
  - The Glasgow Financial Alliance for Net Zero (GFANZ).
  - The Glasgow Breakthroughs on technology innovation. 
  - Powering Past Coal and shifting to clean power. 
  - Nearly 100 countries committing to cutting methane emissions. 
  - A commitment to end and reverse deforestation by 2030. 
  - H2Zero - A pledge to accelerate use of decarbonised hydrogen.
  - A new requirement for net-zero transition plans for listed companies in the UK.
  - Establishing a new International Sustainability Standards Board (ISSB), globally.
• Good progress was made on Article 6 — the rulebook for carbon accounting. 
  
• But there were also a number of setbacks: 
  - The US$100 billion per year climate finance target — due by 2020 — was delayed to 2023. 
  - Many of the new net-zero targets announced have limited detail on near-term plans to help reduce emissions — which is essential if we are to have a chance at limiting global warming to 1.5C.
  - Questions remain regarding the follow through and implementation, with the final call to action requesting all parties to update their Nationally Determined Contributions (NDCs) ahead of the next COP in November 2022.
• It’s becoming increasingly clear that the institutional investment world is starting to exercise real influence through investment policy and are starting to demand increased climate focus from investee companies. Importantly, these investors are focused on private companies as much as public companies.
• The shift to net zero is the next great industrial revolution and businesses that seize the opportunity are expected to thrive — those that don’t, may not. 

Reflections on COP26  |  Notable successes  |  COP26 shortcomings  |  Implications for businesses  |  Stakeholder accountability  |  Short-term targets and action  |  In summary

In the run up to Glasgow, UK Prime Minister Boris Johnson called for COP26 to be a “turning point for humanity” that could put the world on track to meet the goals set out in the 2015 Paris Agreement of limiting global warming to “well below” 2C on pre-industrial levels — with an aspiration of keeping it to 1.5C. 

By contrast, Greta Thunberg predicted it would just be more “blah, blah, blah” with politicians not following through on their commitments and lacking real action.

So, which was it? KPMG’s view is it was somewhere in between, with progress made in a number of areas, but also some significant disappointments. Glasgow held on to the aspirations of the Paris Agreement of limiting global warming to 1.5C, but, as things stand, the world is definitely not on track to hit this target. 

COP26 has delivered in creating increased momentum on the climate agenda and more parts of society are being mobilised to act. There are now a growing number of ‘bottom up’ initiatives, like GFANZ, that are developing a momentum of their own — with the potential to make real change.

Glasgow should be seen as part of the ongoing process of global climate change negotiations that began at the Rio Earth Summit in 1992. The final ‘decision’ document reflects this ongoing process — calling on all parties to submit updated or new Nationally Determined Contributions (NDCs) ahead of COP27 in November 2022.

With new commitments made by India, Russia, Brazil, Saudi Arabia, Australia and others, at least 90 percent of the world’s economy is now signed up to net-zero targets — that figure was less than 30 percent one year ago.² 

Businesses are now far more engaged than ever before, taking initiative and not waiting for governments to act. This was demonstrated by the Glasgow Financial Alliance for Net Zero (GFANZ), which has US$130 trillion of assets under its control. Clean finance can now play a critical role in driving, or stopping, activity irrespective of changes in government policy — although some questions remain about how these assets expect to be mobilised in practice.  

More generally, there has been a definite and perceptible shift toward ‘bottom up’ action by companies, investors, consumers, individuals and cities — with a vast array of initiatives underway to help reduce greenhouse gas (GHG) emissions, that will likely generate a momentum of their own, separate from the government-led COP gatherings.

Banks, insurers and capital markets are expected to drive action now to a far greater extent than ever before.  The new requirements for all listed companies in the UK to produce net-zero transition plans by 2023 can only increase transparency and scrutiny of the companies that have credible plans and those that don’t. This is likely to be replicated in other countries.

COP26 has established a new International Sustainability Standards Board (ISSB) to develop global reporting standards, building on and incorporating initiatives like the Task Force for Climate-related Disclosures (TCFD).

The Glasgow Breakthroughs establish innovation programmes for clean power, zero emission road transport, clean steel, hydrogen and sustainable agriculture. There is considerable optimism around the world that the solutions to climate change can be found, with a big role for renewables, electric vehicles, low carbon hydrogen, batteries, carbon capture and storage, direct air capture, and other forms of long-duration energy storage.³

Methane accounts for about 0.5C of the 1.1C-1.2C warming the world has seen to date, and the Global Methane Pledge signed by over 100 countries, will aim to cut methane emissions by 30 percent by 2030 — compared with 2020 levels.

Progress was made on reforestation, with the commitment signed by over 100 countries including Brazil, Russia, Canada, Indonesia, Democratic Republic of the Congo and China to reverse and end deforestation by 2030. This builds on the biodiversity commitments held at COP15 to a 30 by 30 target — a plan to conserve 30 percent of the world’s land and sea by 2030. 

On coal, the G20, including China, had already agreed to stop funding new coal-fired power stations, abroad. Now, 65 countries have signed up to the Powering Past Coal initiative aimed at taking coal — the most polluting fuel — out of the energy mix, altogether. ⁴ In a dramatic last-minute twist, the final text of the Glasgow Climate Pact was amended to refer to the “phase-down of unabated coal” rather than “phase-out” — following push back from some large coal using countries. 

There has also been a much greater focus on green innovation, through the UN Climate Change Global Innovation Hub and on supporting emerging technologies through the announcement of the First Movers Coalition.

There was significant progress made on Article 6 — the rule book for carbon accounting. This will bring greater transparency to how carbon markets work, closing a number of loopholes and reducing the scope for double counting of carbon reductions.

The climate finance target of US$100 billion per year for developing nations — first introduced in Copenhagen back in 2009, and due to be met by 2020 — can now not expect to be met before 2023. 

While there have been new long-term commitments to net zero made by a number of countries in the run up to COP26 — including energy-rich economies like Australia and Saudi Arabia — the shorter-term targets and plans for many countries for 2030 remain vague. We need to see a steep drop in emissions this decade, if we are to limit global warming to 1.5C (see graph below). The UN estimates that we’re far from halving world emissions by 2030 — as needed for the Paris goal of 1.5C emissions. Referring to net zero and the Paris Agreement goals, Special Presidential Envoy for Climate John Kerry, summed it up by saying that “We can do this. The question now is whether we do it in time.”