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COP26: The story so far

Author: ICAEW Insights

Published: 08 Nov 2021

Week one of the Glasgow climate conference concluded in a blizzard of new commitments and frameworks. ICAEW Insights presents a roundup of five key announcements and what they could mean for the business and accountancy community.

The first week of COP26 saw a number of bold topline measures announced to tackle the global climate emergency. Whilst each announcement, framework and commitment were welcome, little scrutiny was applied before the next newsworthy commitment was released. Here is a roundup of five key announcements and what they mean.

1) GFANZ reaches $130tn

The Glasgow Financial Alliance for Net-Zero (GFANZ), spearheaded by former Bank of England Governor Mark Carney, confirmed on Finance Day of COP26 that it now has more than $130tn in assets under management. These assets represent 40% of the world’s total financial assets and are managed by 450 firms across 45 nations. 

Carney said: "The money is here today, but that money needs net-zero-aligned projects. There’s a way to turn this into a very powerful virtuous circle. This is what we need to crack over the course of this year." 

The eye-watering figure, in theory, will deliver the estimated $100tn of finance required for net zero by 2050. However, Reclaim Finance highlighted that only one-third of the Alliance's collective assets are currently aligned with their 2050 roadmap. The concern is that the Alliance is ‘marking its own homework’ and that it “lacks any criteria on fossil fuels or absolute emission reductions”. The headline figure is problematic, as much of this finance is not allocatable and may not be easily divestible. In addition, the way the fund was calculated has led to double counting. 

GFANZ have said they are taking steps to manage member commitments and will establish “processes for removing members where necessary”, but this must be developed and communicated in a timely fashion to ensure transparency and a clear pathway to net zero.

2) ISSB launch

After great anticipation, the IFRS Foundation announced the new International Sustainability Standards Board (ISSB), which will merge the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). This news comes as a great relief to many market observers who have long complained about the multitude of international standard setters. In addition, the new international sustainability standard will be rooted in TCFD, which is already set to become mandatory in the UK for large companies in April next year. ISSB has given itself the task of having the climate standard ready as a priority  – with TCFD becoming mandatory in 2022 and Rishi Sunak backing the adoption of ISSB, it looks like new reporting frameworks will be out in full force in the near future. 

3) UK businesses required to publish net-zero plans

Chancellor Rishi Sunak unveiled that a mandate for all large businesses and public enterprises to develop net-zero transition plans by the end of 2024 will be introduced. This reiterates the recent Roadmap to Sustainable Investing, which confirms that large firms in high-emitting sectors must publish their plans detailing how they are going to reduce their reliance on fossil fuels with milestones to reach net-zero by 2050. Sunak confirmed the UK Government has already developed a science-based gold standard verification scheme for the plans and the Financial Conduct Authority will measure the performance of companies and will have the power to fine those that do not produce plans or deliver on their pledges.

Although these are encouraging steps in the right direction, much of the UK Government’s focus has been on large companies. SMEs make up the majority of business in the UK, yet seem to be missing from much of the conversation on transition plans and reporting. It will be interesting to see what further guidance and regulation is introduced to help small businesses take the necessary steps to transition in line with the Paris Agreement targets.

4) Pledge to end deforestation 

A commitment to halt deforestation whilst restoring land degradation by 2030 is being described as a landmark moment for nature and has been agreed by more than 100 nations and 30 financial institutions promising to eliminate harmful practices from their portfolios. This represents more than 85% of forests globally.

On the day of its launch, the commitment garnered financial support pledges of £8.75bn from national governments and £5.3bn from the private sector with the UK Government providing £1.5bn to the initiative.

Alison Hoare, a senior research fellow at Chatham House, highlighted that world leaders already promised in 2014 to end deforestation by 2030 but since then it has accelerated across many countries. “This new pledge recognises the range of actions needed to protect our forests, including finance, support for rural livelihoods, and strong trade policies. For it to succeed, inclusive processes and equitable legal frameworks will be needed, and governments must work with civil society, businesses and Indigenous peoples to agree, monitor and implement them.”

HRH Prince Charles urged countries to disincentivise those causing deforestation and reward those who are restoring nature. “Now that we know what the problem is, and having done our best to test the world to destruction in the meantime, we simply must talk about the solutions and the actions we can start taking today,” he continued: “Frankly, we’ve all had enough talking.”

Funding will be provided to developing nations as a priority. With 80% of the world’s biodiversity estimated to be concentrated within regions where Indigenous communities are based, funding will be provided to ensure the rights of Indigenous communities are respected.

5) Coal and methane pledges

In September, the EU and US spearheaded a new Global Methane Pledge, jointly stating their intention to cut methane emissions by 30% by 2030, against a 2020 baseline. The Global Methane Pledge went global at COP26 and is now backed by more than 100 of the UN’s 193 member states. Given the potency of methane and its effects on global warming, it was a welcome announcement that took some of the focus from carbon, if only for a moment. After the G20 communique made its first reference to methane but failed to set firm targets for reduction, the support shown from nations at COP26 for the pledge is a positive step towards tackling climate change. However, according to the Energy Transition Commission, the Pledge is on course to reduce emissions by more than 50 million tonnes, which is still well short of the 130 million tonnes required to align with the 1.5-degree pathway.

The “Global Coal to Clean Power Transition Statement” was released earlier in the week in Glasgow, agreed by more than 190 parties including China and Poland, which captures coal phase-outs from governments and the private sector in developing countries, vulnerable nations and some of the world’s largest polluters. The parties agreed to phase-out coal power from major economies by 2030 and by 2040 for the rest of the world, signally the end of coal as a global power source.

According to the International Energy Agency, the burning of coal accounts for 27% of the world’s total carbon emissions. This commitment to rapidly phase-out coal may be the key to ‘keeping 1.5 degrees alive’, as is the COP26 mantra.

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