When governments and business respond constructively to each other’s signals, a virtuous circle, or “ambition loop” can be achieved.
Looking ahead, it is essential that these key stakeholders continue to engage in dialogue.
But what is needed to accelerate climate action and boost ambition?
Almost five years ago, governments signed the landmark Paris Agreement on climate change and 2030 Agenda for Sustainable Development, providing a roadmap for sustainable development and environmental stability. This week, all eyes are on world leaders as they gather in New York, US, for the UN Climate Action Summit, a major stepping stone for the implementation of the Paris Agreement.
Experience has shown that when governments and business respond constructively to each other’s signals, a virtuous circle, or “ambition loop” can be achieved. Looking ahead, it is essential that these key stakeholders continue to engage in dialogue. But what is needed to accelerate action and boost ambition?
CDP (formerly Carbon Disclosure Project) runs the world’s leading environmental disclosure system, with over 7,000 companies disclosing environmental data through CDP in 2018. We have analyzed information from a sample of the world’s biggest companies on what impact policy has on their business. Based on this we have identified key recommendations for policymakers, financial regulators and supervisors.
Governments Need to Provide Certainty
The research shows that two-thirds of the companies analysed (66%) reported potential risks linked to policy and regulation, but crucially, of these companies, 91% report that they are managing that risk by taking steps to start measuring and disclosing their activities. This is in response to potential reporting regulation and/or reducing their climate impact to address other regulation.
While 26% of companies specifically cited policy uncertainty and lack of regulation as key risks, clarity and certainty from policymakers would create an enabling environment for companies.
When companies have certainty about climate policy, this brings potential financial or strategic opportunities. Around one-quarter of all companies identify business opportunities that they expect to materialize when future regulation is implemented, or current regulations are strengthened.
CDP recommends that governments submit enhanced Nationally Determined Contributions (NDCs) by 2020 that are in line with the Paris Agreement’s goals and consistent with long-term strategies and national policies. When companies have clarity and consistency around future regulations, they can align their business plans accordingly and help to ensure a stable financial transition.
Innovation in Policy Response: Central Banks and Supervisors Give Steer to the Market
We are also seeing new ways of shifting capital towards the climate agenda with the rise of new actors, such as central banks and supervisors, giving a strong steer to the market.
So far, the Bank of England, De Nederlandsche Bank, Banque de France and People’s Bank of China have been the most active in making banks and insurers take climate risks seriously. They are conducting thematic reviews on the climate-related risks that could affect the financial sector, building strategies and guidelines on how to tackle the risks and promote green financial development.
At the same time, the launch of the Central Bank and Supervisors Network for Greening the Financial System in 2017 (NGFS) signals a more widespread step in this direction.
Corporate Leadership on Climate
The recent Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C has delivered the clearest message yet on what we need to do to avoid the catastrophic impacts of runaway global warming. Put bluntly, to limit warming to 1.5°C, our global economy needs to completely transform. We need to halve total greenhouse gas (GHG) emissions in the next ten years and continue on a trajectory to net zero emissions by 2050 and beyond.
More positively, over 600 companies globally are already taking the necessary action by setting science-based emissions reduction targets through the Science Based Targets Initiative that are aligned with the goals of the Paris Agreement.
Indeed, over 50 companies are now ratcheting up their own ambition and demonstrating leadership by committing to ensure that their targets are in line with the Paris Agreement’s 1.5°C temperature goal.
Although corporate climate action has certainly stepped up over the past decade, the world is not yet on track to meet the goals of the Paris Agreement. In order to accelerate action, policymakers and regulators can play a critical role in laying the roadmap for corporate climate action. The world needs global leadership to tackle the global climate crisis.
Heads of State convening in New York for the UN Climate Action Summit during the opening week of the 74th session of the UN General Assembly (UNGA) have the opportunity to map the direction of travel, gearing up to the 25th session of the Conference of the Parties (COP 25) to the UNFCCC in Santiago, Chile, and the critical COP 26 in Glasgow, UK, in 2020.
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This article was written by Pietro Bertazzi, Global Director of Policy Engagement at CDP. You can get in touch with CDP today to learn more about its policy work.