The COP26 Agenda: What did and didn’t happen, and what it might mean for you
World leaders came together to commit to progress against climate change. We cover what went well, what could have been better, and how this affects you.
By GreenPortfolio Team
December 29, 2021
The COP26 summit brought together leaders of nearly 200 countries and resulted in pledges to reduce fossil fuel investment, end deforestation, and update nationally determined contributions. Now, the work of implementing these commitments and holding governments and companies accountable begins.
What is COP26 and why is it important?
In November 2021, 197 countries came together in Glasgow, Scotland for the 26th Conference of the Parties, known as COP26. Created by the United Nations and held since 1995 when the United Nations Framework on Climate Change (UNFCCC) was adopted, the climate conference brings together nearly all nations annually to coordinate action on climate change. This year, thousands of delegates from national governments alongside those from local government, businesses, and NGOs gathered for the two-week long summit.
Many eyes were closely watching this year’s COP as countries were set to submit updated climate strategies in advance of the conference. A foundation of the 2015 Paris Agreement, these plans - known as nationally determined contributions (NDCs) - outline each country’s effort to reduce emissions and are revised every five years.
The ambition of the NDCs represents a critical point in efforts to align policies with the Paris Agreement goal to ’limit global warming to well below 2, preferably to 1.5°C, compared to pre-industrial levels’: analysis by Climate Action Tracker indicates that if we continue with current policies, global temperatures will rise by 2.7°C by 2100. Only the most optimistic scenarios estimate that warming will be kept within the 1.5°C targets with the results hinging on both setting effective pledges and their implementation.
What commitments were made at COP26?
By the end of conference, over three-quarters of the party countries had submitted updated NDCs for cutting emissions through 2030. Critically, however, analysis by the UN indicated that commitments through 2030 were not ambitious enough to allow countries to achieve longer term emissions reductions targets and countries were called upon to resubmit plans within the next year for reducing 2030 emissions.
Many of the other commitments made during the COP26 summit, like the Glasgow Climate Pact, were positive steps. Headlines included 130 countries, home to 90% of forests, pledging to end deforestation by 2030, 100 countries committing to reduce methane emissions, governments and corporations making commitments on clean transportation, and coordinating agreements on Article 6 which govern international carbon markets. The US and China made a joint declaration to work together to implement the goals of the Paris Agreement – an unexpected and welcome announcement from the countries which are the two largest global emitters of greenhouse gases.
Countries also agreed to make “accelerating efforts towards the phasedown of unabated coal power.” The inclusion of coal was notable – it was the first time that coal was mentioned in the final agreement – but many were disappointed over the choice of the wording ‘phasedown’ versus ‘phase out’, a concession requested by India whose economy is more dependent on coal. Several countries committed to the Global Coal to Clean Power Transition – and the phase out of unabated coal – but absent were China, Japan, India, and the United States which account for three-quarters of global coal use.
The outcome of the negotiations was summed up by COP26 president Alok Sharma closing the conference: “we have kept 1.5 degrees alive. But, its pulse is weak and it will only survive if we keep our promises and translate commitments into rapid action.”
Will COP26 help bridge the climate finance gap?
Climate finance was at the center of what some dubbed the ‘Finance COP’ with the acknowledgement that climate adaptation and mitigation will require substantial capital and, just as importantly, a reallocation of capital away from fossil fuels and towards the clean transition. This transition will require a combined effort of public and private finance as well as investment by developed countries in developing countries. Developed countries, which committed to providing $100 billion annually in financing for climate action to developing economies by 2020, fell behind on this promise – announcing the delayed target date to 2023.
Over twenty countries and several financial institutions committed to ending public financing for international fossil fuel projects. Absent were commitments on domestic financing as well as ending fossil fuel subsidies. Other concerns included language on ‘unabated’ fossil fuels which would allow projects that are offset carbon capture to receive funding as well as the commitment to end public financing, allowing private financing to continue.
Private finance also made headlines with the announcement of commitments to align $130 trillion in capital managed by the financial sector with net zero targets. The Glasgow Financial Alliance for Net Zero (GFANZ), chaired by former Bank of England head Mark Carney and composed of over 450 financial institutions from 45 countries including banks, asset manager, pension funds and insurers, committed to reporting annually on emissions financed.
Of contention is which guidance on net zero pathways to follow and whether funding of fossil fuel projects can be continued. The International Energy Agency (IEA) guidance calls for stopping the flow of capital to fossil fuel investments in an effort to achieve global warming targets with many banks and financial institutions reluctant to make this commitment.
What is the oversight and accountability for COP26 pledges?
Worth noting is that country NDCs are not legally binding unless individual countries choose to make them law as the EU and some other countries have done. Other commitments, like the Glasgow Climate Pact and corporate pledges to reduce carbon footprint, fall into the same category and aren’t legally binding.
The UN has called out the emissions gap, indicating the disconnect between the ambitious long-term commitments and the interim steps that have been proposed to get there, sending countries back to restate their 2030 targets. Targets, and importantly their implementation, will remain subject to countries themselves. Transparency into their progress will be a key factor into motivating and assessing progress.
On the corporate side, efforts to create transparency for investors and other stakeholders into climate impact are many; enforcement of quality, however, remains weak. During COP26, the International Financial Reporting Standards (IFRS) Foundations announced the creation of the International Sustainability Standards Board (ISSB) to provide investors and regulators with transparency into company reporting social and climate factors – disclosure which is currently fragmented and inconsistent across various voluntary standards. The adoption of standards is likely contingent on their incorporation into the regulations in different markets, potentially delaying uniform use in the near term.
The UK has started to make efforts at standardized and mandatory reporting, announcing prior to COP26 that the largest public and private UK-registered companies, numbering about 1,300 firms, would be required to provide climate related disclosure under the guidance of the Taskforce on Climate Related Financial Disclosures (TCFD) – the first G20 country to mandate such disclosure.
How will the trends from COP26 affect you?
The demand for effective action and impact and the call for transparency and oversight will come from the voter and advocate, the consumer, and the investor – in short, from you.
Advocates: Thousands of climate activists held demonstrations in Glasgow and in cities around the world during COP26, demanding action alongside pledges. Youth activism, which has played a significant role in drawing attention to the climate crisis, took on particular urgency as young leaders expressed frustration at the likelihood that climate change would impact their and future generations more profoundly, and in fact, is already appearing as extreme weather events. Advocacy brings attention to inaction on climate pledges – many of which are not law.
Consumers: Addressing climate change will require a transformation of the economy with all sectors required to look at everything from how to reduce the carbon footprint of their supply chain to how to recycle and reuse waste. According to EY, half of consumers are willing to pay more for sustainable products with revenues for these products growing at a more rapid pace. The adoption of new business models and technologies will make financing this transition key and will also be an important part of financial institutions shifting their portfolios to clean investments that retail investors are looking for.
Investors: Part of the key to addressing the inherent challenges of shifting portfolio allocations to clean investments is the role of investor in advocating for the allocation of investments in their portfolios in order to change the system, according to Hiro Mizuno, Special Envoy of U.N Secretary-General on Innovative Finance and Sustainable Investments. Stopping funding for fossil fuels should be part of a plan to achieve global warming targets and GreenPortfolio’s mission is to enable investors and consumers to play an important role here in demanding action.
It’s time to voice your preferences as an investor and take action if you don’t see changes. Market research indicates consumers value impact and sustainable products, but companies will truly make adjustments if it starts affecting their bottom line.
Continued work by climate conscious individuals in advocating for effective climate legislation, clean investment portfolios and sustainable products will ultimately be critical to achieving the COP26 goals.
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