'On the winning camp': The business guide to COP26 and why it matters

In 1992, US President George H. W. Bush joined other world leaders and signed the first global treaty to combat climate change, saying that an "unprecedented era of peace, freedom and stability" in the wake of the Cold War would spur action to protect the environment.

"We must leave this Earth in better condition than we found it," he told the Earth Summit in Rio de Janeiro, which saw almost 200 nations endorse the UN Framework Convention on Climate Change (UNFCCC).

But the Rio rhetoric fell flat at subsequent annual meetings of the UNFCCC that were meant to work out the details of how to make good on world leaders' supposedly epoch-shaping pledges. Each of these meetings were known as Conferences of the Parties, or COPs, and they have become synonymous with both the world's admirable intention to tackle the climate crisis and the diplomatic quagmire and geopolitical tensions that have repeatedly stymied efforts to curb global emissions. Right from the start of the process there was a gaping disconnect between the rhetoric and the reality. Rich Western nations failed to meet a core ambition of limiting their greenhouse gas emissions to 1990 levels by 2000. US emissions alone leapt by more than 10 per cent in the decade as the economy boomed.

And businesses felt little pressure to respond to early COPs, shackled for years by US-led doubts that human greenhouse gas emissions from burning fossil fuels were the main driver of climate change, and by the reluctance of many nations to make a wrenching economic shift away from fossil fuels.

But three decades on, times have changed radically. Few if any businesses can afford to ignore this year's COP.

The 26th COP since that Rio Earth Summit is set to come to Glasgow, Scotland, from October 31 to November 12, and is billed as a pivotal moment in global efforts to slow the climate crisis. Long-running fears the Summit could be postponed for a second time due to the on-going coronavirus pandemic appear to have been largely assuaged, despite considerable anger and frustration among some poorer nations at the hugely uneven pace of the vaccine rollout around the world. Barring a late disaster, tens of thousands of politicians, diplomats, journalists, campaigners, and business leaders are now finalising their itineraries and preparing to descend on Glasgow.

Maria Mendiluce, CEO of the We Mean Business Coalition, which represents many of the world's largest blue chips and aims to help companies halve emissions by 2030 and achieve net zero by 2050 at the latest, said that COPs have become key staging posts for businesses as they look to identify and track the opportunities offered by a greener economy. A few years ago "climate change was seen more as a threat to business… [but] from 2015 onwards it's moving from a threat to an opportunity," she reflects, adding that while "before you were on the losing camp, now you are on the winning camp" by embracing tougher action to shift to cleaner energy.

Paris breakthrough

The big change that came in 2015 was the Paris Agreement, adopted by almost 200 nations at the COP21 Summit in the French capital. As an informal gauge of the rising importance of COPs, about 40,000 people attended COP21 in Paris, ranging from world leaders to climate activists dressed as polar bears. By contrast, after the UNFCCC entered into force in 1994, just 4,000 attended COP1 in Bonn in 1995, which was presided over by a young German environment minister, Angela Merkel.

Amidst considerable diplomatic drama, COP21 delivered the biggest breakthrough in the UNFCCC's history. The Paris Agreement set a goal of cutting emissions to net zero in the second half of the century and limiting the average rise in global temperatures to "well below" 2C above pre-industrial times while "pursuing efforts" to limit the rise to 1.5C.

The United Nations says that the 1.5C goal will require an almost halving of emissions this decade from 2010 levels, meaning annual global cuts in emissions of 7.6 per cent. Until now, such rates are unknown outside of economic crises - such as the coronavirus pandemic, wartime, or in Russia after the collapse of the Soviet Union. Meanwhile, average world temperatures are already about 1.2C from pre-industrial times and still rising fast.

The Paris Agreement obliges all nations to contribute to curbing emissions to achieve the 1992 UNFCCC goal of averting "dangerous anthropogenic (human) interference with the climate system", marking a break from previous climate pacts that focused demands to limit emissions on developed nations. Crucially, the treaty also foresees five-year milestones where countries are expected to ratchet up the ambition of their national climate action plans - or Nationally Determined Contributions (NDCs) in the UN jargon. As such a first test of the Paris Agreement's progress was due in 2020, before it was delayed by the pandemic to 2021. That makes Glasgow the most important COP since Paris, the start of what the United Nations calls a 'decisive decade'.

Business pressure

Putting the world on track to meet the goals of the Paris Agreement by halving emissions this decade would be a staggering achievement, especially with emissions rebounding this year in the wake of the first wave of coronavirus lockdowns.

Consequently, businesses and investors will be both watching COP26 to see what policy and market signals come out of the meeting and attempting to influence proceedings by stepping up calls for an ambitious new wave of global climate action. Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC), said that investors are increasingly using COPs to put pressure on governments and companies to show that they are delivering on the Paris Agreement and adopting credible net zero goals. The IIGCC alone has more than 330 members, mainly pension funds and asset managers, across 22 countries, with over €39tr in assets under management.

"These COPs are important for governments to signal commitments and plans," said Pfeifer. "What then really matters are the details - the action plans - to 2030. We need to see the roadmaps countries are putting in place in the shorter term, not just long-term commitments."

Mendiluce credits COP21 in Paris with helping to trigger a massive shift in corporate thinking. Electric cars, for instance, were a tiny niche in 2015. Now, US electric car maker Tesla has rocketed to be among the top 10 companies worldwide by market capitalisation, valued at more than $700bn, and almost every major auto manufacturer on the planet has unveiled plans to switch to electric fleets.

Perhaps even more strikingly, Mendiluce noted, big cement makers - whose emissions are equivalent to those of small nations - are trying to adopt Paris goals. LafargeHolcim, for instance, was among 277 companies on an "A list" of the best performers on climate change in 2020 compiled by carbon disclosure platform CDP.

Climate fears

Part of the reason for a lack of urgency at early COPs was that there was still a possibility that some unknown natural swings in the climate were stoking warming. Then in 1995 a UN panel of scientists pointed the finger of blame at humanity for the first time, declaring that "the balance of evidence suggests a discernible human influence on global climate".

In the ensuing decades warnings from scientists became ever more clear cut, until in August this year the same Intergovernmental Panel on Climate Change (IPCC) erased any lingering doubt about humanity's role in rising temperatures, concluding it is "unequivocal" - beyond any doubt - "that human influence has warmed the atmosphere, ocean and land".

This overwhelming scientific consensus was matched by a similarly broad agreement amongst political and business leaders that the climate crisis is severe and escalating, and requires immediate and drastic action to avert a full blown global catastrophe - a consensus that ultimately led to the Paris Agreement.

But COP summits still face considerable political and logistical challenges, as diplomats strive to deliver on that initial Rio Summit goal of leaving the Earth "in better condition than we found it".

An eventful history

COPs have veered between a diplomatic backwater and the global spotlight. COP1 under Merkel paved the way to the 1997 Kyoto Protocol at COP3, which set targets for developed nations to cut emissions in a first period until 2012. But Republican President George W. Bush, the son of President Bush who had signed the parent UNFCCC treaty, announced in 2001 that the US would not implement Kyoto, calling it an economic straitjacket that unfairly omitted targets for emerging economies led by China and India.

Kyoto eventually limped into force in 2005, with Moscow helping it secure enough ratifications even after President Vladimir Putin had publicly mused that warming might benefit the agricultural industry and mean Russians would have to buy fewer fur coats. European nations led the way in curbing carbon emissions under Kyoto, but the annual COP Summits struggled to gain traction as many other nations fell short of their Kyoto goals and the Bush administration stoked Republican climate scepticism.

The years' of drift were ultimately brough to an end by moments of high drama.

In Bali, Indonesia, in 2007, governments set a two-year goal to work out a new global accord on climate change. The US, which had led opposition to the idea, backed down after its delegates were stunningly booed by other delegates after a stormy overnight session.

Two years later, however, with President Obama riding high the Copenhagen Summit, COP15, collapsed and failed to achieve the global deal planned in Bali. Venezuela's delegate famously bloodied her hand by banging it on the desk on the last night, denouncing the draft accord as too weak. Sudan's delegate caused uproar by comparing the impact of rich nations' climate policies in Africa to the Holocaust. A widely condemned face-saving agreement was stitched together after marathon talks ended in a stand-off between those pushing for an ambitious new international accord that would enable decarbonisation and powerful emerging economies that feared such a commitment would stymie their development.

In 2010, governments patched together the Cancun Agreements at COP16 in the Mexican resort and established the roadmap that would culminate in the Paris Agreement five years later.

In reaching agreements - often after marathon overnight sessions at the end of two weeks of talks - COPs use a vague yardstick of "consensus", a measure that falls slightly short of a demand for "unanimity" that would hand every delegation a veto.

There is no vote, no show of hands to signal agreement and it is left to the COP president - in Glasgow that will be Britain's Alok Sharma - to decide when major objections to a deal have been ironed out. The president then bangs down a gavel to signal that agreement has been reached.

It is an approach that can court controversy. At COP21, for instance, Nicaragua's delegate vehemently opposed the Paris Agreement, but French Foreign Minister Laurent Fabius who was presiding simply ignored him and gavelled the deal through. Russia objected furiously in 2012 when its objections to a deal in Doha to extend the Kyoto Protocol were overlooked.

This somewhat ad hoc form of decision making is further complicated by the confusing array of acronyms that define a COP - delegates talk of LULUCF, SBSTA, AOSIS, and have a host for non-governmental organisations (NGOs) to work with. For companies, the most relevant is BINGO - Businesses and Industry NGOs.

Delivering Paris

The Paris Agreement may have been an historic breakthrough that ushered in an era of remarkable consensus on the need for climate action, but it did not bring the years of COP-related drama to an end.

The accord suffered a huge setback in 2017 when former President Donald Trump decided to pull out of the treaty, saying it was unfairly penalising the US economy. He argued the treaty placed unreasonable burdens on Americans, even though the accord was deliberately built around the NDCs - domestic climate plans, set by each nation, and with no sanctions in place for non-compliance.

However, the Paris Agreement survived Trump's attacks - no other nation imitated the US withdrawal and President Joe Biden rejoined the Paris Agreement as soon as he took office in January 2021. He then announced plans to cut US emissions by half this decade - a radical goal that observers hope will catalyse similar pledges from other major emitters at COP26.

The US experience has been indicative of both the importance of national climate action plans or NDCs and the inability of major economies to deliver emissions cuts at the pace required to meet the goals of the Paris Agreement. US emissions were down 12 per cent in 2019 from a peak in 2005, but they are still almost two per cent above 1990 levels, the base year used by the UNFCCC. In contrast, EU emissions were down 28 per cent by 2019 from 1990, Britain's were down 41 per cent, and Russia's were down by 33 per cent, according to UN data.

However, reduced emissions from many industrialised nations have been more than offset by surging emissions from emerging economies. As such, despite a brief flat-lining of global emissions in the wake of the Paris Agreement emissions were rising again when the coronavirus hit and are now climbing again as the global economic recovery gathers pace.

Consequently, the overarching goal for COP26 is to "keep the 1.5C goal alive" at a time when emissions are still rising and the gap between emissions reductions pledges and decarbonisation action remains so wide.

The good news is that many nations are strengthening their climate strategies. Almost 56 per cent of the world´'s population, accounting for 61 per cent of global emissions, lives in nations committed to net zero emissions by 2050 or 2060, according to a study by the UK-based Energy & Climate Intelligence Unit (ECIU) and Oxford Net Zero.

But only 110 nations met a July 2021 deadline - delayed from 2020 by the pandemic - for submitting new or updated NDCs setting out climate policies through to 2030. Patricia Espinosa, head of UN Climate Change, decried that overall performance on NDCs as "far from satisfactory".

Major emitters including China and India were among more than 80 nations that have missed the deadline. A Climate Action Tracker, by two scientific groups, suggests that current policies put the world on track for 2.9C of warming by 2100. COP26 will show how serious countries are about bridging the gap to 1.5C. The UK hosts have made securing more net zero pledges from major economies a top priority for the summit. And businesses will be watching the results closely.

"Both the commitments and the mood at COPs shape markets," explained Richard Black, senior associate at ECIU. "It's a lot easier to set a target for 2050 than to set a target for the next decade which basically means you have to act now to deliver it. There is a big push now to look at the quality and integrity of net zero targets. Unless you have policies to cut emissions right now, then it's hard to conclude that a net zero target is credible."

Businesses with targets for 2030 that stand up to scrutiny and are not mere "greenwashing" promises were likely to benefit from the COP, he said. And if the Summit does underscore governments' commitment to decarbonisation then it will only amplify the growing risks of lawsuits against companies accused of stoking damaging warming.

Climate finance and carbon trading

COP26 will also seek to raise funds for developing nations who accuse the rich world of failing to meet a 2009 commitment to provide $100bn a year by 2020 to help climate vulnerable nations cope with escalating climate impacts. Climate finance has always been a flashpoint in the negotiations, ever since the 1992 Convention spelt out that rich nations have to take the lead, and help developing nations.

Recent reports have suggested industrialised nations are confident the $100bn climate finance target will be met at COP26, but Climate Summits have always been dominated by disagreements between rich and poor nations and Glasgow is unlikely to be any different. Even if the climate funding pledge is finally honoured, divisions remain over the role of carbon markets and offsets in mobilising investment in emission reduction efforts and nature protection, not to mention the details and distribution of climate financing commitments. Similarly, some influential emerging economies and petrostates remain wary of calls for them to accelerate decarbonisation efforts, while others are expected to resist plans for a more robust regime for tracking emissions reduction efforts, citing sovereignty concerns. All these historic divisions and tensions are likely to be intensified by frustrations at the uneven pace of the global coronavirus vaccine roll out.

And yet, with less than a month to go until COP26 kicks off seasoned observers and key participants are broadly optimistic the Glasgow Summit can deliver a series of important breakthroughs that will 'keep 1.5C alive'. It may not deliver fully on the promises made over 30 years ago in Rio, but the hope is that just like the Paris Summit six years ago the signal for governments, businesses, and investors will be that global climate action is accelerating and the pursuit of net zero emissions is set to define the rest of the century.