The agreement, negotiated by almost 200 nations over two weeks, isn’t the pact that some were hoping for. But it sets out a vision for a world that radically cuts back coal usage, eliminates fossil-fuel subsidies and commits governments to the most ambitious targets of the Paris Agreement.
Skeptics argue that the whole accord rests on a massive bet that the world’s biggest polluters will eliminate all their net emissions in the next few decades and say the recent surge in coal mining in China, India and Australia proves just how hard this is going to be.
But the outcome of COP26 “made it crystal clear to businesses that they need to move away from fossil fuels,” said Nick Molho, executive director of Aldersgate Group, which represents companies worth 550 billion pounds ($740 billion) pushing for sustainability. Businesses will travel in that direction whether or not governments back up their pledges with policies, he said.
How quickly global business and finance move away from fossil fuels is still an open question. U.K. Prime Minister Boris Johnson said Sunday that the Glasgow pact sounded the “death knell” for coal, but the final language was watered down at the last minute to “phase down” unabated coal power after objections from India that were backed by the U.S. and China. The qualifications leave the door open for investment in some coal plants, especially if they’re equipped with technology to capture emissions.
Even so, companies are already preparing for a greener world. Hundreds of global businesses have set targets to cut carbon dioxide emissions, including oil giants like Royal Dutch Shell Plc and BP Plc. Companies were eager to show their support in Glasgow, with countless industry booths and appearances by corporate elites like Microsoft Corp. co-founder Bill Gates and BlackRock Inc. Chief Executive Officer Larry Fink.
In the six years since the Paris Agreement was signed, the business world has moved faster than public policy, according to John Kerry, U.S. special presidential envoy for climate. “Not only are companies ahead of government, but companies understand that their future is tied to having a stable marketplace,” he said.
Boardrooms still have a long way to go. Only 5% of the companies listed on major European stock indexes which have set targets to reach net-zero emissions by 2050 are on track to meet their goals, according to a study by Accenture. And they’re the ones ahead of the curve. Green entrepreneurs in poorer countries face much higher funding costs than their counterparts in richer nations. Many companies in China and India — two of the world’s biggest polluters — have yet to lay out detailed carbon-neutrality plans.
Many of these tensions can be seen in former Bank of England governor Mark Carney’s drive to get the finance industry to cut their portfolio emissions to zero by mid-century. One of the biggest announcements at COP26 came in the first week when the Glasgow Financial Alliance for Net Zero said that signatories overseeing about $130 trillion would set clear targets and timelines for greening their investments. (Michael R. Bloomberg, founder of Bloomberg LP, is co-chair of GFANZ.)
The initiative was greeted with skepticism by some experts. Members didn’t say how much money will actually be shifted into green activities and they haven’t agreed on a fixed definition of net zero. JPMorgan Chase & Co., the world’s biggest funder of fossil fuels, was a late entry and hasn’t specified how it will meet GFANZ’s target. The group also excludes three of the world’s biggest banks, all of which are Chinese and major providers of coal finance.
But the strength of international agreements like the Glasgow Climate Pact comes from the fact that governments are united over a single consensus, no matter how broad, that sets the foundation for investment and policy to follow.
Since countries agreed in Paris to try and limit global warming to 1.5 degrees Celsius from pre-industrial levels, almost every single industry in the world has been transformed. More than $2 trillion poured into green energy and technologies, according to BloombergNEF, giving birth to a new generation of billionaires. Tesla Inc., now worth $1 trillion after sparking an entirely new ecosystem in the car industry, may be a model for future game-changers in everything from green steel to fake meat.
“For the first 20 years of the climate problem, it was governments subsidizing green technologies and making markets with regulation,” said Nick Mabey, chief executive of environmental think tank E3G. “Then technology got in front of those regulations and now governments follow the technology and the markets.”
The challenge for governments and activists is holding companies accountable. In Glasgow, governments approved rules to boost scrutiny of national climate pledges. There’s a parallel effort by the Science Based Targets initiative to do the same for companies, which might prove to be even more important.
There is a “need to be realistic about what is truly possible, and for investor claims of ‘green’ approaches to be verifiable,” Jessica Alsford, an analyst with Morgan Stanley, wrote in a note to clients.
One significant development for companies that want to reach their climate targets was an agreement on the rules to create a global market for carbon credits. The past few years has seen an explosion in interest from businesses looking to reduce emissions from their carbon balance sheets by purchasing offsets.
Even as experts debate the merits of the new framework, which some warn is not watertight against greenwashing, the agreement will have “profound implications on both the supply and demand landscape of the voluntary carbon markets,” said Simone Tagliapietra, a senior fellow at Brussels-based think tank Bruegel. “Uncertainty on this front indeed disincentivized governments to develop robust domestic markets.”
While COP26’s main action happened in the Blue Zone where country negotiators worked on the pact, the Green Zone across the river Clyde saw unprecedented representation from business, finance and nonprofits.
“Glasgow will be remembered as the turning point when companies from all sectors, en masse, are now turning their attention to developing and driving their decarbonization strategies,” said Keith Tuffley, global co-head of sustainability and corporate transitions at Citigroup Inc. “It is another big step forward on the pathway towards a net-zero emissions world.”