COP26 and Your ESG Strategy

On Sunday, one of the most critical inter-governmental meetings in years kicked off in Glasgow, Scotland. But What is COP26, and how will it affect Canadian businesses?

What is COP26 and Why Does it Matter?

COP26, the 26th meeting of the Council of Parties to the UN climate convention has been described by none other than Prince Charles as a “last chance saloon” for countries to commit to decisive action on climate change. Historic consensus was reached at COP21 in Paris in 2016, when 196 countries signed a legally-binding agreement to limit global warming to 2 degrees above pre-industrial levels, with a more ambitious goal of 1.5 degrees. This year is about turning those commitments into action, and those watching closely hope that the world’s leaders will agree to reach net zero carbon emissions by 2050. 

Previously, the COP meetings have been somewhat of a toothless tiger, with countries struggling to agree on emissions reduction strategies and a fair approach for developing nations. However, the movement to Net Zero has accelerated over the last couple of years, as leaders of government and business alike recognize the true urgency of addressing global heating before we reach a point of no return, which may be coming sooner than anyone thought. (It’s important to remember that doesn’t mean no emissions are allowed, it means that any emissions produced must be offset by carbon reduction strategies.)

This year’s summit seeks to set out the steps needed to reach this goal, and particularly seeking to have countries commit to the net zero target, a critical milestone to limiting global heating. Many countries have made this pledge, although few have credibly mapped out how they will get there. Coal-reliant major polluters, China and India, are high profile hold-outs, aiming for net zero by 2060 and 2070 respectively, casting a shadow over this week’s negotiations.

As British PM Boris Johnson put it, “coal, cash, cars and trees” will be on the agenda this week. Notable is the inclusion sustainable finance for the first time, a topic that’s gaining significant traction, particularly following Mark Carney’s establishment of the Global Financial Alliance for Net Zero (GFANZ). With the World Bank noting that investment in clean energy projects and infrastructure will need to increase to $4 trillion by 2030, the financial sector will have a critical role to play in supporting the world’s progress to keep global heating below 1.5 degrees. As well as the potential of this sector to contribute to positive change, financial institutions will also be under scrutiny for ongoing funding of carbon intensive industries, particularly fossil fuels.

What Can you Expect from Canada at COP26?

Canada is the only G20 nation to have increased its emissions since the Paris Accord was signed 5 years ago, so we can expect Prime Minister Trudeau to be in the spotlight this week, as the world looks to its biggest economic powers to demonstrate leadership with meaningful climate action. It’s worth noting that the G20, which also includes the US, UK and China, amongst others, produces 80% of the world’s emissions.

In a speech on Monday, Trudeau confirmed his government’s commitment to introduce a cap on emissions produced by the oil and gas sector. While this addresses just one industry, it’s a noteworthy step, not only because of the anticipated political blowback, but also because Canada produces some of the dirtiest (most carbon intensive oil) on the market, with Canada ranking 47th out of 50 oil producing nations. 

With former Environment Minister Jonathan Wilkinson recently appointed as Energy Minister in Trudeau’s new Cabinet, and Steven Guilbeault taking over the Environment portfolio, pundits are anticipating stronger climate action from this government following COP26. With Canada having been accused of being all talk in the past, it will be interesting to observe what actions are implemented, and how quickly.

What Canadian Businesses Should Prepare for After COP26

Of course, while global leaders like to boast about their bold actions on the international stage, the rubber really hits the road when it comes to policy-making at home.

Although Canada, like most countries, hasn’t outlined a clear plan to get to Net Zero over the next thirty years, it seems inevitable now that this must happen, which will mean businesses and individuals should prepare for changes. This might look like increasing energy costs for power from polluting sources, once subsidies are dropped and demand decreases. Certainly, we’re seeing the last days of thermal coal, and those reliant on this sector will need to begin transitioning now. It may look like a more formal cap-and-trade emissions scheme, incentives for electric vehicles or green buildings, or even expectations that businesses of a particular size reduce their own carbon footprint.

Many organizations are already anticipating this and are leading the way with their own net-zero commitments, before changes are mandated. This is great news for the planet, because all sectors are needed, but it’s also good news for early moving businesses, as they’re likely to gain the reputational benefits of taking decisive and authentic action toward environmental sustainability. For businesses who are doing the ‘E’ in ESG well, this can translate to better ability to attract and retain talent, better productivity, increased sales and stronger brand goodwill.

Watching events like COP26 closely can give clues about what to expect in the future, and how strong the push will be for change in particular areas, equipping businesses to prepare to pivot as necessary.

For Canadian organizations with an ESG strategy, or those looking to build capacity in environmental sustainability, here are some things you can do to get ahead of the curve, as the world picks up the pace toward Net-Zero:

·      Start transitioning your employee pension scheme, investments and debt to sustainable funds and providers. Contrary to popular belief, sustainable funds have outperformed the market over the past 10 years, and most analysts now consider fossil fuel stocks to be high risk.

·      With the sale of new gas-powered cars and light trucks to be banned in Canada from 2035, planning to phase out old fleet vehicles and install electric vehicle infrastructure will help you spread costs during the transition.

·      Single use plastics will be phased out shortly, so if you rely on plastic bags, utensils or other products, the time to change is now.

·      Energy prices could be affected by a transition to renewable sources, at least in the short-term. While it’s hoped that governments will act to limit the downstream financial impacts on businesses and individuals, it’s never a bad idea to look for ways to reduce energy overheads. A few possibilities include installing motion-activated lighting, improving insulation, lowering office temperature, or improving cross-ventilation to reduce the need for air conditioning.

·      Sustainability doesn’t have to be about cutting things out. Consider what climate-positive solutions you could adopt or participate in, such as tree planting, purchasing good-quality offsets, or signing up to an accountability scheme such as 1% For the Planet or B Corporation.

Are you watching COP26? What do you think the most critical sustainability policies will be in the next few years? Let us know your thoughts in the comments.