COP26 Achievements: Action Plans vs. Pledges

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The Future of Carbon Disclosures

The COP26 Summit in Glasgow is finished, bringing certain important resolutions to its central topic of climate change. High expectations on many fronts, particularly for carbon markets, were met in the last hours of the summit after tough and lengthy negotiations reached agreements on global carbon trading. But action plans to reduce GHG emissions remained unfulfilled. COP has grown to represent many challenges, as the world’s top platform in which climate initiatives are unveiled and topics are negotiated. It aims to accelerate actions to meet the goals of the 2015 Paris Agreement, where nearly 200 countries agreed to make changes to keep the rise of global warming to “well below” an increase of 2˚C above pre-industrial levels, and preferably 1.5˚C, to avoid a climate catastrophe. COP26 includes tracking its member nations’ national distributed contributions (NDCs) towards global GHG emission reduction.

COP26 Goals: Climate Action Commitments & Decarbonization

COP26 aimed to accelerate global climate action through more ambitious commitments, and most importantly, through target-based action plans for decarbonization.

COP26 Goals included:

  • Radically lower GHG emissions

  • Produce concrete actions by each country for reaching “carbon neutral” state

  • Planning to keep global warming to an increase of 1.5°C

  • Phase-out coal by 2050

  • Set carbon trading rules

  • Raise $100 billion in climate finance

COP26 has attempted to determine the global rule book for how countries will achieve those goals through negotiations. COP26 appears to have failed to achieve most of these goals, due to the huge geopolitical implications and challenges of climate change. Asking the world to change the centuries-long, deeply engrained practice of relying on fossil fuels for industrial and socio-economic growth, is an enormous challenge. The behavior of the developed world during the COP26 Summit is proof of the difficulty of reaching the agreements that COP26 was hoping for. Major GHG emitters, like the U.S. and EU, were at once asserting themselves as strong supporters of the need for drastic GHG emissions reduction, while on the same exact day asking fossil fuel producing countries to increase their production of fossil fuels because of an anticipated energy crisis.

COP26 Outcomes: Carbon Trading Deal & Lingering Concerns

After two weeks of talks and extended negotiations in Glasgow, COP26 generated a hard set of rules on carbon markets. Otherwise, however, it only produced pledges – though some breakthrough ones – and aspirations for which action plans were not provided, and therefore, without specific metrics on how the pledges are to be materialized, their impact on reaching a carbon-neutral state would not be able to be measured and assessed over the coming years.

The use of coal was “phased down” and not “phased out” as the goal had stated, and a pledge to start reducing methane emissions is just a pledge. The fact, however, that the words “coal” and “methane” are now included in the COP text sends a clear message.

Additional concerns with the COP26 outcomes include the lack of funding commitments to support the climate change needs, both mitigation and adaptation, of developing countries. There is also great concern that the projected temperature increase will be 2.4°C if additional efforts to curtail climate change are not made over what is pledged now, although COP26 delegates agreed to keep the temperature increase to 1.8°C.

Article 6 Carbon Market Rules Agreed Upon

Article 6, a key part of the Paris Agreement, addresses CO2 markets. It allows parties to voluntarily cooperate to meet their NDCs, providing for international transfers of mitigation outcomes. Article 6 deals with how emission reductions should be accounted for by governments and how emission reductions can be transferred between countries and counted towards NDCs. The premise is to increase flexibility in meeting the overall global goal of staying within 2°C of a temperature increase.

Article 6 is at the core of how international voluntary carbon markets develop. How COP26 has finalized the carbon market rules has important implications for corporations developing action plans to reduce their carbon footprint.

It is considered best practice to align a company’s emissions reduction target with the level of decarbonization required to meet the goals of the Paris Agreement. Over 2,000 companies have set such science-based targets, with a focus to become net-zero carbon within a certain time. In fact, at COP26, a coalition of the world’s biggest investors, banks, and insurers, that together control $130 trillion in assets, just committed to using capital to hit net-zero carbon emissions targets in their investments by 2050. Carbon credits (or “offsets”) are a valuable resource for meeting these targets and may be a critical component in reaching annual targets of an action plan, especially in the short term. As a result, the voluntary carbon market has experienced unprecedented growth and interest.

However, confusion around how voluntary carbon credits were accounted for slowed investment in the voluntary carbon market. COP26 delegates have finally agreed upon and finalized carbon market accounting rules and, as a result, the confusion and barriers for companies to pursue carbon credits, which are often purchased internationally, appear to be lifted. McKinsey Sustainability writes that the demand for carbon credits could increase more than 15 times by 2030 and up to 100 times by 2050.

Do We Need Carbon Offsets?

In the short term, definitely yes. In the long-term, their role may be viewed more as “greenwashing”. This is because developing scalable technologies to address climate change via substituting fossil fuels with other forms of energy – “green energy” – is the necessary long-term transformation required to address climate change and its perils. This technology is advancing fast on all fronts and is expected to grow even faster in the years to come. This is evident in the commitments made at the COP26 climate summit, where financial institutions with $130 trillion in assets pledged to reach net-zero carbon.

While keeping the global temperature rise within limits is a well agreed upon goal, this goal does not and cannot have specific targets and metrics, and does not translate to specific accountabilities. Its precondition, however, does. The necessary precondition to keep the temperature within limits is to reach a net-zero carbon or carbon-neutral state within a certain timeframe. This precondition to the goal does translate to accountability for countries, cities, and corporations, and requires targets and metrics; that is it should translate into an action plan. It is easy to pledge a reduction. It is difficult to say how you will achieve it. The concern is that the majority of commitments made before and during COP26 are just wishes; declarations made without an action plan.

ESG Data Verification and Assurance Increase Confidence

One certain expectation that has recently gained momentum is that the data and information provided in an ESG report should be verifiable in order to assure their accuracy and validity. In the case of GHG emissions, the accuracy of the emissions needs to be verified and assured, if the GHG reduction commitments presented in ESG reports are to be used as targets and the GHG emissions calculated are to be used as metrics, trusted by investors, other stakeholders and the public. Assurance requires that the appropriate data have been collected and the collection methods are accurate. It also requires that the data have been analyzed and validated through acceptable scientific principles and data analytics processes, and that, finally, the appropriate assumptions have been applied and the correct calculations have been performed. Sustainability professionals possessing technical expertise are best suited to perform such critical validation and assurance operations. 

Common Standards for ESG Are Coming…

What gets measured gets managed, so it is critical that the pledges made at COP26 follow the reporting and assurance measures required to provide confidence and transparency for the new climate change commitments that are given. The existing sustainability reporting landscape is complex and there is momentum to consolidate. On November 3, 2021, the International Financial Reporting Standards (IFRS) Foundation announced the creation of a new standard-setting board, the International Sustainability Standards Board (ISSB), to help develop a high-quality reporting standard for ESG matters.

The ISSB will consider the current four leading reporting standards and frameworks:

  • Task Force on Climate-Related Financial Disclosures (TCFD) framework

  • Value Reporting Foundation (VRF) – established by the recent merger of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC)

  • Global Reporting Initiative (GRI)

  • CDP (formerly known as the Carbon Disclosure Project)

It is likely that the ISSB will adopt a climate-first approach, placing TCFD at the core of the new standard.

Going From Promises to Action Plans

The biggest challenge for climate change is to go from pledges and aspirations to action plans. Action plans translate to accountability, which has proven to be difficult to accept. The transition to net-zero carbon is massive and complex, as it has immense geopolitical, social, economic, humanistic, and ecological implications. It is a transition that requires us to change two centuries of “fossil fuel-centered” thinking and acting. If we succeed – and we can succeed – the phenomenal impact that the Industrial Revolution has had on our civilization and planet could be positively overshadowed by the impact of the Green Revolution on climate change.

For more information, please contact us or call (800) 508-8034 to speak with one of our Sustainability consultants today.

Blog Author

Becky Twohey, Ph.D.
Senior Sustainability Analyst
KERAMIDA Inc.

Contact Becky at btwohey@keramida.com.

Vicky Keramida, Ph.D.
CEO & Chief Technical Officer
KERAMIDA Inc.

Contact Vicky at keramida@keramida.com