Cutting through the murky details of treaty text and international negotiations, we offer our thoughts on what those maneuverings will mean for business in 2019.
It was a marathon when people are hoping for a sprint. Poland played host to over 22,000 people at the annual UN conference on climate change this past December (COP 24). These meetings are tortuous affairs where the placement of a comma can be an international incident. In contrast to the monumental 2015 Paris Agreement, COP 24 had a far less exciting, but vitally important, task – that of writing the ‘rulebook’ for that Agreement. Despite difficulties and unfinished business, it was clear that we are moving towards a low carbon transition. And this is where the marathon comes in.
Leading up to the COP, the IPCC released a new report in October that assessed the impacts of a 1.5°C increase in global temperatures – spoiler alert – impacts are worse and happening faster than we thought. This sobering report clearly stated the scientific reasons why we should make a concerted and aggressive effort to mitigate climate change in the next 12 years. This led to urgent calls for tripling climate action and increasing monies from government and industry. In some respects, COP 24 advanced this agenda with a set of operational rules that pave the way for governments to start to implement the Paris Agreement. But it also left some key issues unresolved and did not signal greater ambition either by countries or non-state actors. This basically gets us to the starting line of the marathon instead of being halfway done a brisk 200 metre sprint.
In truth, international policy is more than one step removed from day to day activity in the finance sector for most of us. So, do these outcomes matter to us and our day jobs at all? Here are three ways we think they do.
First, governments now have guidelines on transparency for financial flows (i.e., money moving more quickly from developed to developing countries to help with reducing GHGs and adapting to impacts ), stock-taking (e.g., greenhouse gas footprinting) and other framework setting actions. There may be direct impacts on business and industry as a part of government initiatives. Things to watch for include:
- incentives such as grants and tax breaks,
- command and control such as stronger carbon taxes or market-based mechanisms, and
- opportunities funded by government such as developmental aid and industry-education projects.
In Canada, while we have the beginnings of many of these, the COP 24 rulebook provides support for these to continue and only become more strict.
Second, as the world collectively moves on climate change, the transition to a low-carbon economy will become clearer and impact the viability of business strategies and valuations. Most already recognize that this transition is occurring. The more support given to the transition—through financing, policy and other means—the faster it will happen. The relevant questions are:
- How abrupt will it be?
- And are you on the right side of the disruption?
These are not easy questions and the former is potentially impossible to know until we’ve come through the transition. But the latter question is one that can be planned for.
Choosing relevant signposts for your company will be key to capitalizing on opportunity and avoiding risk.
The rulebook calls for signatory nations to submit a review of their actions and a plan going forward in 2020. Key inputs into preparing for a transition may be found in current country disclosures and certainly in those in 2020.
Lastly, there were no surprises in the political stances at COP 24. As expected, the Trump-instructed US negotiators presented a significant challenges to consensus on some issues. Despite this, there is still sizeable action by state, municipal and private sector actors across the US. Additionally, while a handful of countries similarly provided challenge to the consensus, it is worth noting that the bulk of the 197 Parties did not. That momentum alone indicates that we are looking at continued and consequential movement on climate change in the short and long term.
In truth, COP meetings are slower progress than many would like and can be frustrating to watch for those of us who understand the type of ambition and swift action that’s needed to address the global climate crisis. It can be hard to see where these incremental international policy changes impact day to day business. That said, the international process still works, it’s still intact and keeping the word’s attention collectively on the urgent need to transition and adapt, even if the rules itself don’t get us there fast enough. COP outcomes set out the framework and rules for member states to follow and leaves the implementation up to the individual governments. So, we take a signal from COP 24 that there will be greater climate action, but continue to look for the most consequential action closer to ‘home’ – in local governments, and through sectors and industry players with the foresight and courage to move faster towards the finish line.