What does COP26 mean for business?

Whether or not you believe that the pledges made at COP26 go far enough to reduce global warming – and a recent IoD poll on LinkedIn suggests that the answer is a resounding ‘no, they didn’t’ – the measures set to follow these pledges will have implications for businesses across the UK and the world.

Regulatory pressure down the line 

The climate commitments made by governments at COP26 will only be achieved if governments can successfully mobilise businesses towards net zero; pressure will increasingly be imposed on investment and industry to reduce emissions, reshaping the landscape in which businesses operate.

Some of the key agreements made at COP26 include:

• A breakthrough on rules for governing carbon markets. By putting in place the framework for a global trading system, the pact also brings the world closer to establishing a worldwide price for carbon.
• 20 countries pledged to halt public financing of fossil fuel projects overseas, and 23 nations promised to ‘phase out’ coal-fired power.
• The pashing out of subsidies that artificially lower the price of coal, oil, or natural gas.
• More than 100 countries committed to stop deforestation by 2030.

• More than 100 countries agreed to cut methane emissions by 2030.

In order to meet these goals, governments will enact domestic policies combining increased spending on sustainable sectors and regulations making operating unsustainably less profitable. Around the world, boards can expect tougher national pollution policies across all sectors, particularly in transport, energy, and farming.

This trend has been evident in the raft of sustainability policies affecting businesses announced by the UK government in recent months, including:

• Ending the sale of new petrol and diesel cars and vans by 2030.
• Committing the UK to being powered entirely by clean energy by 2035.

• Announcing that suppliers who bid for government contracts worth over £5 million will be required to provide a Carbon Reduction Plan detailing how they will achieve Net Zero by 2050.
• Business rates relief for companies and landlords investing in green technologies, such as solar panels and heat pumps, during the next five years.

Governments are likely to focus on getting businesses to make clear, detailed plans for how they will achieve net zero. During COP26, the UK government further announced that by 2023, all publicly listed companies and financial institutions in the UK will be required to publish plans detailing how they will meet the UK’s 2050 net zero target. This will not only force action on the part of the two thirds of such companies not already doing this but will create a ripple effect as these businesses turn to other businesses in their supply chains in order to reduce their scope three emissions.

Net Zero as a core principle for business 

Alongside the many pledges made by governments throughout COP26, a central outcome of the summit was a clear shift in momentum for businesses towards net zero.

This enshrining of net zero as a core organising principle for business will leave companies without serious plans to adapt to a low-carbon economy exposed, not only to their customers but with regards to various government regulations coming down the line. COP26 has sent a clear message to companies: measure your carbon footprint and instigate a plan to move towards net zero, or risk lagging behind competitors.

Well-formed net zero plans will set ambitious targets for reducing scope one, two, and three emissions to meet not only short-term, government-mandated targets but long-term goals, based on scientifically informed mitigation trajectories. They will consider environmental risks and opportunities across the company’s portfolio and will set out the capital required for reducing emissions and any carbon credits necessary.

We know from our research that four in five directors believe that it is important for their businesses to operate in a sustainable way, yet only 26% of directors’ organisations have put in place a plan to move to net zero.

What is clear from COP26 is that, where governments have abdicated leadership on moving to net zero, it will be down to businesses to show more urgency in addressing climate change.

Getting started on your net zero journey 

The IoD has partnered with the Royal Scottish Geographical Society to provide the Climate Solutions Accelerator training programme – which covers practical solutions which can be applied at board level and throughout any organisation – free of charge to all IoD members. Click here to find out more.

The IoD Sustainability taskforce has also drawn together helpful resources around sustainability, ensuring guidance is in place for directors, enabling them to make the best and most informed decisions for their businesses.

For more insight into COP26 and its implications for business, you can watch our webinar on the topic here. It will also be available in podcast form here in due course.