8 NOVEMBER 2021

Welcome to our special COP26 edition of Towards Planet Net-Zero where we have gathered the key highlights from week one in Glasgow based on our meetings with clients and other organisations as well as attending a broad range of events, in and out of the blue and green zones.

While this is the halfway point before we see the final country pledges, it is clear that COP26 will remain the COP of private sector mobilisation, with developments being announced representing all industries that have real potential to bolster global commitments to tackling the climate and biodiversity crisis. First, we start with a preview of what the second week of COP26 will bring.

1. What to look for in week two at COP26

Funding for emerging markets climate change mitigation?– Monday will focus on adaptation and loss, and a key topic will be the USD100bn fund to help emerging markets combat climate change. US Climate Envoy, John Kerry, is believed to be working hard to deliver the USD100bn climate change fund to help emerging markets combat climate change mitigation and adaptation. While this may be pushed until 2023, an annual fund of USD100bn to support development in emerging markets will drive positive impact.

Gender – Tuesday is gender day, and this is likely to be one area where we should find unanimous support from COP26 participants. Particularly we are expecting a fund to help emerging markets support workers’ rights and better working conditions.

Transport – Wednesday is transport day, and batteries will be a key focus. Battery technology needs investment, in R&D, CAPEX, and supply chains. We are looking for strategic commitments to emerge to allocate more capital to new battery manufacturing, partnerships around joint R&D, and additional partnerships and agreements to ensure stable supply chains for battery development.

Carbon pricing – It is critical that the world begins to offer a monetary value for the forested areas of the world to ensure forests are not cut down. However, we feel it will remain elusive for agreement on creating a global carbon market (Article 6 of the Paris Agreement). This could move in the agenda to Thursday where the focus will also be on Cities and the Built Environment.

2. Key developments from week one of COP26

Accelerating the transition in Energy

Renewable energy development to soar, as companies shift investments away from coal

44 countries and 32 companies and regions, pledged to transition from coal to clean power. Of these signatories, 18 key countries, for the first time, pledge to phase out - and not build new - coal power, including Poland, Vietnam and Chile. In the private sector, new commitments were taken from major energy companies, and $17 trillion in assets were committed to coal phase outs

Cutting methane emissions to tackle a key contributor to global warming

Led by the U.S. and the EU, and gathering many other major emitters accounting for more than 40 percent of global emissions of the ultra-warming and potent greenhouse gas (28 to 34 times as warming as CO2 over a 100 year period), a methane pledge was announced that aims to cut emissions of methane gas by 30 percent by 2030.?This pledge follows publication of recent scientific studies highlighting that cutting methane could have major climate benefits within the next few decades.

O&G financing restriction

With the end of coal in sight, the focus is shifting to O&G. Building on the latest reports of both IPCC and the International Energy Agency calling for step change acceleration of the transition and the end of new developments, 20 countries including the US, the UK and Canada have pledged to end public financing for oil and gas overseas by the end of 2022.

Green hydrogen companies increase target

A coalition of hydrogen companies have upped their target of 45,000 MW of electrolysers by 2027, up from 25,000 MW by 2026.?

Climate risk measurement gaining traction with several key frameworks

Clarity, transparency and harmonised sustainability reporting with ISSB

The International Finance Reporting Standards (IFRS), the body responsible for international accounting standards, yesterday announced that it would create the International Sustainability Standards Board (ISSB), which would be responsible for creating a single set of standards to provide adequate sustainability reporting for investors.

The ISSB will build on existing frameworks, such as the TCFD guidelines, the Climate Disclosure Standards Board (initiative from CDP) and the Value Reporting Foundation which houses the Integrated Reporting Framework and the SASB Standards.

This sustainability disclosure framework was unanimously warmly welcomed in Glasgow, with strong calls to make it adopted globally. Larry Fink, CEO of BlackRock, highlighted the importance of ensuring all companies are held to the same standards, in order to prevent greenwashing. He also cited that oil companies are selling assets to private companies, which makes it impossible to track emissions.

In a related important development last week, host country the UK announced that their largest companies, estimated to be over 1,300 in total, will be required to disclose climate-related financial information from 2022.

China and EU complete their “Common Ground Taxonomy”?

The document compares the EU Taxonomy and China Taxonomy, highlighting commonalities and differences. Its goal is to provide transparency between the two approaches (i.e. rather than to provide a single taxonomy for both regions to abide by). We think this is a positive step towards further clarity in the sustainable finance space, which could increase investor confidence in sustainable finance products. If investors are comfortable and aware of the environmental footprint of their investments, this could have the potential to encourage more private sector investment to be channeled towards green projects. This could help to bridge the funding gap highlighted by Mark Carney last week, who commented that there is sufficient funding to fuel the green transition; however, the issue is deploying these funds to where they need to be. In our view, it also highlights the willingness of China to work with the EU towards a common goal, which will be necessary in order to achieve the numerous pledges and targets of COP26 set out by world leaders.

Financial institutions considering climate change more closely

The Bank of England (BOE) announced that they would look to green their Corporate Bond Purchase Scheme (CBPS) with criteria initially aimed at reducing the carbon intensity of the CBPS by 25% by 2025, and have a carbon neutral CBPS by 2050. This greening of their portfolio will start in November, although companies are not forced to offer climate disclosures until 2022.

The Network for Greening the Financial System (NGFS) strengthening its roots

The Network for Greening the Financial System (NGFS) has grown to include 100 members, as of yesterday. The NGFS is a group of central banks and supervisors committed to developing environment and climate risk management, and mobilising mainstream finance to support the transition to a sustainable economy. New joiners include: supervisory authorities of Turkey and Jersey, and the central banks of Jordan, Peru and the Dominican Republic.

The next steps for the green transition

40% of the world’s assets on Net Zero trajectories

Mark Carney succeeded in mobilising the financial industry on Climate Change: 40% of assets globally are now covered by net-zero goal with more than 450 firms belonging to the Glasgow Financial Alliance for Net Zero (GFANZ). They’ll have to use?science-based methodologies to reach net zero carbon emissions by mid-century, and to provide 2030 climate goals. This impressive momentum will be fully needed to accelerate economies’ transition and bridge the financial gap (estimated in hundreds of trillions USD) to limit global warming to manageable levels.

Bringing forward the “tipping point” on green technologies

Over 40 nations, together representing two-thirds of the world economy, committed align standards and coordinate investments to speed up production and bring forward the “tipping point”, at which green technologies are more affordable and accessible than fossil-fueled alternatives, to 2030. This acceleration has to happen everywhere.

Indian?Prime Minister Narendra Modi made the boldest statement of intent at the opening of the?COP26 climate summit?in Glasgow announcing that half of India’s electricity will come from renewable sources by 2030. The United States will join Britain, France, Germany, and the EU in a new partnership to help South Africa, the largest carbon emitter in Africa, finance a faster transition from coal.

Preparing the future

Beyond the transition technologies that exist today, companies are yet to develop the carbon neutral technologies of tomorrow which will allow the societies to build, transport, produce, work, living in a carbon neutral way. Ensuring sufficient investments in R&D will be critical to future proof our planet and deliver on our second leg of the journey to net zero.The World Economic Forum and the US Department of State launched the?First Movers Coalition?at COP26. Steered by US climate envoy John Kerry, this new partnership of the world’s leading companies across emissions-intensive sectors will make proactive purchasing commitments for emerging green technologies.

Saving forests and reforesting seen as a top priority

In this race to net zero, forests remain a top priority and a key enabler, and therefore a key asset with expected growing value.

More than 100 global leaders, representing 85% of the world's forests, have committed to stopping and reversing deforestation by 2030. And the financial community is stepping in, with more than 30 leading financial institutions, collectively with over US $8.7 trillion in assets under management, have committed to tackle?agricultural commodity-driven deforestation?as part of broader efforts to drive the global shift towards sustainable production and nature-based solutions.

A Final world

The first week of COP26 has seen announcements indicating a real momentum of the world mobilizing resources and capital towards net-zero.?We also see unprecedented potential of scaling up for a just transition through active engagement of coalitions and partnerships looking at the social impact of solutions involving business of all types and sizes, organizations and society.?While COP26 so far has had a mix of ups and downs, based on our vantage point, we do see the best potential ahead for companies that are committed to making the transition.

Until our next edition, when we will have a wrap up of COP26 week 2.

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