Even though the UN climate change conference (“COP26”) has now drawn to a close, the key commitments made here are still at the forefront of discussions around the world. We’ve outlined five of the key takeaways discussed during the first week of COP26. These priorities are reflective of a shifting dialogue by financial institutions and large corporations towards more environmentally friendly initiatives and seek to blend environmental elements into their environmental, social and corporate governance (“ESG”) strategy.
1. Reduction in deforestation
More than 100 leaders collectively took a significant step forward towards protecting the world’s forests when they committed to halting and reversing forest loss and land degradation by 2030. This pledge was backed by almost £14bn (US$19.2bn) in public and private funding, and aims to support activities in developing countries including restoring degraded land, tackling wildfires and supporting the rights of indigenous communities.
As part of the pledge to end deforestation, more than 30 financial institutions (with over US$8.7trn of global assets) committed to end investment in activities linked to agricultural commodity-driven deforestation by 2025. These stances demonstrate that leading financial institutions are showing a strong commitment to supporting corporations that value green sustainability. This move demonstrates an increasing demand for values-driven practices and operations within corporations, but also reflects a movement towards establishing a robust ESG strategy as an opportunity for long-term value creation.
2. High level commitment to decarbonisation
Over half of the UK’s FTSE100 companies have committed to eliminate their contribution to climate change by 2050. These businesses collectively represent a total market capital of more than £1trn and a combined annual turnover of £700bn. This represents the largest global alliance committed to achieving net zero carbon emissions and signals a strong shift within the UK economy to a greener future.
3. The end of coal?
On 4 November 2021, a 190-strong coalition of countries and organisations agreed to phase out coal power – one of the single biggest contributors to climate change. In addition, at least 23 countries signed the COP26 Coal to Clean Power Transition Agreement. This pledge prompted countries for the first time to stop constructing and issuing permits for new coal plants. Major international banks and financial institutions, including HSBC and Fidelity International, are also committed to ending international public financing of new coal power by the end of 2021.
Despite significant progress, some of the world’s largest coal producers and consumers were absent from the agreement, including the US, India, Australia, and China – accounting for approximately three quarters of the world’s global coal consumption.
4. Scrutiny of the supply chain
The CEOs of five major UK supermarkets; Tesco, Sainsbury’s, Waitrose, Marks & Spencer, and Co-op Food, have all signed up to the WWF’s ‘Retailers’ Commitment to Nature’ pledge to tackle climate and nature emergency. Together these supermarkets have committed to half their overall environmental impact of their respective supply chains by 2030. Food that we produce and buy can account for 60% of the global nature loss and over a third of greenhouse gas emissions, so this commitment represents a significance shift for the supermarket sector in helping to protect vital landscapes and species globally.
5. Private capital commitments
The Glasgow Financial Alliance for Net Zero (“GFANZ”) has committed to using science-based guidelines to reach net zero emissions by, at the latest, 2050. Meanwhile, the interim target is to deliver a fair share of 50% emission reduction this decade with targets reviewed every five years.
This global coalition of leading financial institutions has gained over US$130trn of private capital to help transform the economy for net zero. These commitments, from over 450 firms, spanning 45 countries, can deliver the estimated $100trn of finance needed for net zero over the next three decades. All firms involved are required to report their progress and financed emissions annually.
Overall, these steps represent a growing focus upon sustainability which, in turn, is anticipated to encourage more companies to think about their own sustainability journey and to place greater prominence upon their business’ ESG commitments.
Companies who commit to developing comprehensive ESG strategies are expected to stand out and attract greater investment, whereas companies that fail to adopt similar thinking are likely to risk being left behind.
To find out more on how your ESG strategy stacks up against competitors, download our summary report and ESG eBook ‘ESG Clarity: Benchmarking your initiative’ here.
We partnered with Compliance Week to survey more than 200 senior compliance, audit, legal and finance executives worldwide to understand how corporates are responding to ESG demands. Our ESG eBook discusses these findings, enabling you to track how your own company aligns and to identify how you can enhance your company’s ESG journey.