COP26: the shape of sustainable business emerges

The first agreements from the COP26 climate conference in Glasgow suggest the sustainability carrot of incentives will soon be replaced by the legal stick.

COP26 is a two-week event, but you wouldn’t know that from the coverage. Many world leaders are already home, their participation in the global climate crisis conference in Glasgow seemingly over. 

Don’t be deceived. There are, in effect, two stages to the conference. There’s the showy, political bit at the beginning, which the world leaders attended (with a couple of notable and concerning exceptions). And then there’s the hard work done by specialist negotiating teams to put treaty meat on the political bones. 

So, halfway through this global event, can we see the emerging picture that’s likely to impact what comes next?

COP26 sees the wood and the trees…

The defining announcement of COP26, if coverage in the papers is any indication, has the slightly misleadingly named deforestation pledge. It is not, of course, a pledge to deforest… It is an agreement to both end deforestation and reverse it by 2030. This is obviously significant. Trees are one of nature’s great carbon capture devices. And, while we wait for technological solutions to be developed, getting wood growing — and minimising the release of carbon already captured in trees — will be critical. It won’t be the whole solution; but it will be part of it. 

But what does that mean for us?

At first glance, the deforestation pledge seems unlikely to impact many companies. But don’t be so sure. As we’ve learnt recently, supply chains are complex things, and a change to the input of wood into them might have an impact. Paper prices are already on the rise — and this pledge might well impact this. 

And paper affects packaging and shipping materials and more. Some deforestation is for agriculture, so that too is likely to feel an impact. The ripples through the supply chain are likely to be extensive, but slow at first. But they will accelerate. Those bullwhip effects are tricky things…

Building sustainable tech breakthroughs

But, perhaps more likely to impact more people reading this directly, are some other pledges. And Martin’s prediction that this could be the biggest investment opportunity in history looks spot on. The Glasgow Breakthroughs, in particular, could be of considerable significance to businesses worldwide. 

What are they? They’re…

global goals that aim to make clean technologies and sustainable solutions the most affordable, accessible and attractive option in each emitting sector globally before 2030.

The countries involved have committed to using public-private partnerships to drive down the costs of transitioning to zero-carbon economies. So, yes, green really is the new digital — and some government money is heading our way to help support this transition. This is the carrot.

And, with the UK government suggesting that it could create 20 million new jobs globally and add over $16 trillion to the economies of both emerging and advanced economies, it’s quite a carrot.

But behind that carrot, a stick lurks…

The Carbon Zero Audit is coming

The UK Government has committed to forcing big companies in the financial sector to outline — in detail with timetables — their plans to become net-zero companies. It is clearly the beginning of an emerging trend.

Countries will not be able to meet their net-zero goals by state action alone. Companies will need to act, too. The window for being a first mover — and reaping the marketing advantage from that — is closing. And smart companies will quickly realise that making this investment now, and being applauded for it, is the right path. Being driven there by state-backed punishments is not a good look for any business. 

Now, right now, the UK announcement is not backed by any legislative powers to enforce these plans. But by forcing companies to make those plans accessible to investors, companies will be open to scrutiny over how genuine their commitment to net-zero is. 

Getting ahead of the sustainability game

450 global financial companies are trying to get ahead of the game. They announced at COP26 that they are working together as the Glasgow Financial Alliance for Net Zero, with an aim of using their $130trn in assets under management to ensure net-zero by 2050. There is some understandable scepticism from campaigners. 

But this is still another leading indicator of changes in progress. 

As Gillian Tett notes for the Financial Times:

But the announcement shows the speed at which the zeitgeist in finance is changing, as lenders come under pressure to prove their green credentials.

Green transformation, not greenwashing

Of course, we’re not advocating greenwashing. That’s the deceptive policy of pretending to be green for marketing advantage, while making no real change. It’s so much smarter to take the financial and restructuring pain now, while there’s a marketing gain, than be forced into real change down the line. 

Just as with the digital transition, the advantage will go to the imperfect early movers, rather than the laggards who might implement more thoroughly, but more slowly. Your time to decide which you’re going to be is running out quickly. 

Let’s see what week 2 of COP26 brings…

Photo by Anders J on Unsplash