COP25 04: Taking the pulse – it's the economy stupid!

With negotiations now moving behind closed doors, it is an opportune time to look at events taking place outside the formal conference processes in Madrid and take the pulse of the room. There's a palpable theme at COP25: the negotiations and the commitments of governments to date are falling well behind the action now being demanded by the international business and finance communities.

In advance of the Paris conference in 2015, the UNFCCC recognised the need to mobilise non-state actors, such as corporations and sub-national governments, to achieve the level of ambition required to deliver the transformation to decarbonise the world’s economy. In the four years since COP21 and the Paris Agreement, the mobilisation has reached a critical point that businesses and investors in both numbers and scale are now challenging the lack of progress in the UNFCCC process and demanding urgent action to achieve the goals of the Paris Agreement, even sooner than what the agreement itself requires. Their focus centres on three key issues:

• Limiting the average increase in temperature to no more than 1.5 degrees consistent with the stretch target in the Paris Agreement.
• Achieving net-zero emissions no later than 2050.
• Ensuring there is a just transition from the grey to the green economy, particularly for workers in sectors that will be expected to make the greatest transition.

In short, business and finance is now demanding more ambition from governments and from international negotiations to achieve the transition as soon as possible, with some even advocating a "climate positive" agenda. Some of the events just in the last six months demonstrate the extent of the disconnect beginning to emerge between the agenda of governments and that of the business and finance communities.

Global corporate action

There were already frameworks developed through the UNFCCC processes to encourage business action including the Marrakesh Partnership for Global Climate Action and the NAZCA/Global Climate Action. The Global Climate Action portal now records some 6,600 actions by 2,688 companies to, among other things, achieve emissions reductions and implement adaptation actions. These initiatives however operate in conjunction with actions by regions, cities and other sub-national jurisdictions.

What we have seen recently has been a number of additional business specific initiatives with a view to driving higher levels of ambition. A large number of multi-national and national corporations either individually or in collaboration are now publicly committing to achieving net-zero emissions by 2050 and are setting science based targets across their business and supply chains.

Launched in June 2019, the Chambers Climate Coalition initiative by the International Chamber of Commerce aims to mobilise businesses around the world, including small businesses, to support strong action on climate change. It now has more than 2,100 chamber and affiliate signatories from around the world, who are committed to advocating for policies to limit temperature increase to less than 1.5 degrees and achieve net zero emissions by 2050.

In September 2019, 87 CEOs representing some of the world’s largest companies including Schneider Electric, AstraZeneca, Nestle and Nokia made pledges to be net-zero by 2050. Driven by Paul Polman, former CEO of Unilever, the initiative was remarkably successful in obtaining public commitments from these corporations which will add further pressure on other corporations to make equivalent commitments.

On 11 December 2019 (today), an announcement was made by 177 corporations committing to science based targets consistent with the 1.5 degree goal, more than doubling the number of companies making these commitments since the Climate Ambition Alliance initiative was launched in September 2019. The companies collectively account for 5.8 million employees and have a combined market capitalization of $2.8 trillion.

These companies are joined by a group of investors managing close to $4 trillion in assets who have committed to convert their investment portfolios to net-zero emissions by 2050 through the UN-convened Net Zero Asset Owners Alliance.

Through these public commitments it is hoped that they will encourage more ambitious commitments by governments in their current NDCs, and for them to develop longer term strategies consistent with the science.

Global Investor Statement

The finance sector, particularly institutional investors, have long been concerned about climate-related risk on investments. In the last two years it has become increasingly the concern of financial regulators around the world, including Australia’s own ASIC, APRA, RBA and ASX.

On 9 December 2019, 631 institutional investors managing more than $37 trillion in assets issued the joint Global Investor Statement to Governments on Climate Change. In the statement, these institutional investors urge governments to step up efforts to tackle the global climate crisis and achieve the goals of the Paris Agreement. Action being demanded includes the phasing out thermal coal power, effective carbon pricing, ending fossil fuel subsidies and the strengthening of nationally-determined contributions (NDCs) to meet the goals of the Paris Agreement.

Calling out the recalcitrants

The sense of frustration with the disconnect between the inadequate commitments in current NDCs, and the urgency of rapidly decarbonising to achieve the goals of the Paris Agreement were made plain by the UN Secretary-General during Wednesday’s plenary session on Global Climate Action. In presenting his report on September’s Climate Summit in New York, the Secretary-General identified 10 key actions:

1. Ensure major emitters increase the emissions reductions in their NDCs to be in line with 1.5 degree limit.
2. Require all countries to step up their commitments to implement strategies to deliver net-zero emissions by 2050 or before.
3. Harness new opportunities and technologies including nature based solutions to maximise abatement opportunities.
4. Focus on the social dimensions of climate change by ensuring there is a just transition in the move from grey to green economy.
5. Cut current coal capacity with no new coal plants by 2020. He regarded this as a key to decarbonising the world’s economy and improve health.
6. Speed up the deployment and level of support for renewable energy and energy efficiency, while ending fossil fuel subsidies.
7. Facilitate the faster flow of finance to fund mitigation and adaptation actions with carbon pricing having a key role.
8. Stepping up support for adaptation.
9. Deliver on commitments to the Least Developed Countries and Small Island States, being the countries who are most exposed to the impacts of climate change but have done the least to cause it.
10. Identify ways to speed up the decarbonisation of key sectors, including transportation, energy, steel and cement.

In conclusion António Guterres noted that the outcome of September’s summit showed who is and who is not stepping up to meet the challenge. It was time for straight talk he said, and for the world’s biggest emitters to do more. His top priority over the next 12 months will be putting as much pressure as possible on major emitters to substantially increase their level of ambition and align it as much as possible with achieving the goals of the Paris Agreement.

So it is not just the science that governments and current NDCs are out of step with, but also the increasingly vocal call by business and finance for greater ambition. A critical tipping point is fast approaching in the finance sector and in some industrial sectors that see the urgent need to transition to the green economy and are demanding policies so that the risks can be safely navigated and opportunities seized during that transition.

Brendan Bateman is attending COP25; stay tuned for further reports on its progress.

Related Insights

• COP25 01: When too much ambition is never enough
• COP25 02: Chile in Madrid? Yes, but it’s hotting up
• COP25 03: Mid-way stocktake
• COP25 05: At the end of the conference, goodwill does not equal ambition