COP28: Businesses Step up in Global Climate Debate

COP28, this year’s annual United Nations climate summit, was marked by a surge in corporate participation, with business and private sector representatives significantly outnumbering government delegates. This shift underscores the growing role of the private sector in shaping the goals, targets and agreements that set the path toward net zero.

Like most COP events, this one attracted its share of criticism and controversy, partially because of this rise in private-sector participation, particularly from the energy industry. Even before the event started in the United Arab Emirates on Nov. 30, concerns were raised about the oil producing host country’s commitment to fossil fuel extraction^[1] and alleged misalignment with climate science.^[2]

Negotiations focused on the Global Stocktake, a comprehensive agreement meant to assess progress towards the goals of the Paris Agreement, identify gaps that need to be addressed, and develop a roadmap for international climate action to 2030 and beyond. Despite overlapping contexts and what some critics call “cavernous loopholes” in fossil fuel reduction expectations,^[3] the implications of the Global Stocktake and COP summit for countries and companies alike are considerable.

Negotiations on the future of oil, natural gas, and coal attracted the most attention. Proponents of stronger commitments pushed for an explicit call to “phase-out” or “phase-down” fossil fuels, but fossil fuel-producing and reliant countries pushed back. The final version of the agreement^[4] calls on countries to transition away from fossil fuels in energy systems and a global tripling of renewable energy capacity by 2030.

REGULATORY REQUIREMENTS ARE INCREASING IN DEMAND AND SCOPE

COP summits have long served as launchpads for regional and national announcements on funding, initiatives, and regulations. Though the majority of the focus this year was on global funding negotiations, several key regulatory updates and commitments were released.

The Science Based Targets Initiative (SBTi) launched “Supply Change” – a call to action encouraging companies to help their suppliers establish science-based targets for emissions reduction.^[5] Not only would the initiative catalyze decarbonization throughout the supply chain, but it would also streamline the collection and assessment of Scope 3 emissions data for companies. SBTi also released new Supplier Engagement Guidance^[6] and specific sector guidance.^[7]

Mairead McGuinness, the European Commissioner for Financial Stability, Financial Services, and Financial Markets, announced a more formal regulatory update in a speech at one of the EU’s COP28 side events. She said that regulatory guidance under the EU’s Corporate Sustainability Reporting Directive (CSRD) would be expanded to include requirements for small- and medium-sized enterprises (SMEs).^[8] While the scope of these requirements is currently unclear, they are intended to support SMEs’ responses to sustainability data requests from large clients, banks, or other interested parties. In addition to the extension of CSRD to SMEs, the commissioner highlighted the eventual release of sector-specific regulations.

Only days later, the EU Council and European Parliament reached a provisional deal on the Corporate Sustainability Due Diligence Directive (CSDDD) that will require large companies operating in the EU to identify and take remedial action if their supply chains are found to be employing child labor or damaging the environment.^[9] When the new CSDDD rules come into force – possibly in 2027 – companies found to be in breach could face fines of up to 5% of their global turnover.

Importantly, countries and environmental institutions were not alone in releasing enhanced expectations for reporting and transparency. On Finance Day of COP28, more than 400 organizations across 64 industries and jurisdictions formally supported establishing the International Sustainability Standard Board’s (ISSB) sustainability reporting framework as a global baseline.^[10] The organizations committed to the global adoption of the ISSB framework included investors, stock exchanges, non-governmental organizations, universities, corporate advisors, and companies from a wide range of industries.^[11] Corporate membership groups representing further thousands of companies globally have also signed. This formal statement is a strong signal of support for scalable, comparable, and proportionate disclosure standards.

While calls for increased transparency may seem daunting for companies, transparency and data disclosure remain a key tool for risk mitigation. Though regulations and frameworks may appear to be inconsistent, they are deeply intertwined and typically rely on all or a subset of the same data. For example, there will be a high degree of alignment between the European Sustainability Reporting Standards and the ISSB standards.^[12][13] Those companies with robust disclosures will be well positioned to meet regulatory demands as well as the rising call for transparency and comparability from stakeholders across the globe.

CLIMATE ACTION AND GREEN ADAPTATION INVESTMENT OPPORTUNITIES ARE RISING

The inclusion of specific language addressing fossil fuels in the Global Stocktake is historic. Critics of the agreement will point out that by focusing only on energy systems and by calling for a “transition away from” fossil fuels instead of a “phase out”, not enough has been done to achieve the goals of the Paris Agreement^[14] Proponents of the agreement will argue that while the language may be insufficient, it also formalizes the need to catalyze the green transformation and represents what COP28 President Sultan bin Ahmed Al-Jaber called “a paradigm shift that has the potential to redefine our economies.”

While there are major loopholes in the agreement, and language around fossil fuels could be strengthened, the Global Stocktake signals a formal, global transition away from these emissions-intensive forms of energy. The success of the agreement will depend not only on the reduction of fossil fuel use, but also on the tripling of global renewable energy capacity by 2030.

One of the largest gaps in the agreement is exactly how the tripling of renewable energy capacity will be financed. It is estimated that approximately $4.3 trillion is needed in renewable energy investment each year leading up to 2030 if the agreement’s goals are to be met, but there are no requirements for developed countries to provide funding to developing countries. Acutely aware of these risks, low-income and developing countries are actively seeking out private partners that can help them bridge their funding gaps even as developed countries leverage the power of corporations to bolster their own contributions. The UAE, for example, announced at COP28 that it had launched a $30 billion fund with asset managers BlackRock, TPG and Brookfield to enhance investments in the Global South.

Additionally, public-private partnerships for climate adaptation funding continue to increase in number, setting a precedent for renewable energy financing. Building on the President’s Emergency Plan for Adaptation and Resilience (PREPARE)’s Call to Action to the Private Sector launched at COP27, 21 new companies committed to invest in climate adaptation under the initiative at COP28.^[15] Through PREPARE’s Adaptation Finance Window, local and international companies operating in Africa and Asia have already received funding to scale climate hazard resilience both directly and for their suppliers. The next Finance Window will expand this financial support to an additional seven companies.

Both large funders and smaller, more nimble firms have already indicated that the green energy transformation presents unprecedented opportunities for growth.^[16] The lack of codified funding creates a unique opportunity for companies that are able to invest in green energy projects, infrastructure funds, and renewable technologies. Companies with the capacity for these investments will likely find themselves at the forefront of an energy and economic transformation.

PUBLIC AND PRIVATE SECTORS MUST EQUALLY PRIORITIZE DECARBONIZATION

One of the most striking things about COP28 is that there were vastly more business and private sector representatives in attendance than previous years,. In addition to oil and gas industry representatives, the summit was attended by large banks, consultancies, multinational conglomerates, and climate technology startups. While this may be due in part to the business-oriented nature of the COP28 hosts, this year’s summit demonstrated a marked shift towards the power of COP convenings to serve as a “climate expo,” connecting stakeholders from beyond national governments and bringing a wider array of voices into the climate adaptation and investment discussion.

The presence of businesses at COP28 underscores the integral relationship between business, government, and civil society and the critical role that the private sector must play in global decarbonization. Public/private partnerships and coalitions have long been touted as a vehicle for climate action, but international focus on the power of corporations is sharpening. At COP27, the UN convened a working group – known formally as the High-Level Expert Group (HLEG) on the Net-Zero Emissions Commitments of Non-State Entities – which announced a suite of criteria by which corporate net zero and climate action commitments could be measured.^[17] Building on the HLEG’s findings, a Taskforce on Net Zero Policy was launched at COP28 that will facilitate knowledge-sharing, access to research and technical support, and regulatory opportunity identification for organizations in the private sector.^[18]

This Taskforce is just one indication that international focus on private sector net zero commitments and emissions reporting is rising. During the 10-day COP summit, more than 200 brands committed to fully phase out fossil fuels in accordance with the We Mean Business Coalition’s Fossil to Clean Campaign.^[19] Those businesses that set net zero targets and commit to decarbonization alongside nations and institutions may find themselves open to more opportunities for financing and engagement at the highest global levels.

BUSINESSES STEP UP

Though skepticism remains around financing ambiguity and global implementation, COP28 has codified the importance of the green energy transformation and the critical role that corporations will play. Companies hoping to lead their respective industries into the next global era will need to demonstrate data transparency, innovation, and embedded ESG strategies at the highest levels of the organization.

Notes:

^[1] https://www.energymonitor.ai/sectors/industry/exclusive-cop28-host-uae-to-extract-nearly-40-billion-barrels-of-oil-and-gas-over-70-years/?cf-view
^[2] https://www.theguardian.com/environment/2023/dec/03/back-into-caves-cop28-president-dismisses-phase-out-of-fossil-fuels
^[3] https://www.cnn.com/2023/12/13/climate/cop28-climate-summit-makes-unprecedented-call-for-transition-away-from-fossil-fuels-but-cavernous-loopholes-remain/index.html
^[4] https://unfccc.int/documents/636608
^[5] https://sciencebasedtargets.org/news/supply-change-sbti-launches-cop-call-to-action#:~:text=The%20SBTi’s%20Supply%20Change%20call,to%20set%20science%2Dbased%20targets.
^[6] https://sciencebasedtargets.org/blog/new-supplier-engagement-guidance-unlocking-the-power-of-supply-chains-for-decarbonization
^[7] https://sciencebasedtargets.org/sectors
^[8] https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_23_6341
^[9] https://www.reuters.com/world/europe/eu-parliament-member-states-agree-new-corporate-sustainability-law-2023-12-14/
^[10] https://www.ifrs.org/ifrs-sustainability-disclosure-standards-around-the-world/cop28-declaration-of-support/
^[11] https://www.ifrs.org/news-and-events/news/2023/12/issb-at-cop28-statement-of-support/
^[12] https://www.ifrs.org/news-and-events/news/2023/07/european-comission-efrag-issb-confirm-high-degree-of-climate-disclosure-alignment/
^[13] https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=23PR133
^[14] https://apnews.com/article/cop28-climate-summit-negotiations-fossil-fuels-47dfd6dbf32d987e885acd6dbffc7954
^[15] https://www.usaid.gov/news-information/press-releases/dec-06-2023-administrator-samantha-power-and-special-envoy-kerry-announce-new-usaid-private-sector-commitments-mobilize-finance-climate-adaptation-under-prepare
^[16] https://www.forbes.com/sites/davidparker/2023/12/19/big-funders-and-small-fintechs-at-cop28-agree-net-zero-is-an-unprecedented-opportunity/?sh=3af29e994092
^[17] https://www.un.org/en/climatechange/high-level-expert-group
^[18] https://www.unpri.org/news-and-press/leading-international-agencies-form-taskforce-on-net-zero-policy-to-further-hleg-recommendations/11967.article
^[19] https://www.reuters.com/sustainability/boards-policy-regulation/brandwatch-can-business-bridge-gulf-between-net-zero-target-setting-2023-12-19/