How COP27 affects companies

11/25/2022 | Reading time: 3 minutes

Over the past two weeks, politicians, business leaders, and NGOs gathered in Sharm El-Sheikh for the annual UN Conference of Parties. COP21 resulted in the Paris Agreement which set the widely known “1.5 degree target”, the benchmark for corporate climate actions. How will COP27 affect companies? Let’s take a look. 

More legislative pressure

A key point of discussion at COP27 was the decarbonization of companies. In the lead-up to the conference, the UN Emissions Gap report warned that we do not have a “credible pathway” to limit global warming to 1.5 degree Celsius. We are likely heading for around 2.8 degree Celsius with the policies we have today. A scenario that would drastically change our living conditions and make large parts of our planet inhabitable.

Source: World Economic Forum

With this warning in mind and because most of a country’s emissions stem from its businesses, COP27 explored how countries can put more pressure on companies to work towards net-zero.

The UN released a report during COP27, stating: “To effectively tackle greenwashing and ensure a level playing field, non-state actors [businesses] need to move from voluntary initiatives to regulated requirements for net zero.”

While COP does not create laws, its findings do influence legislation. During the conference, the EU officially adopted its forthcoming climate impact disclosure legislation, the Corporate Sustainability Reporting Directive (CSRD). The United States also introduced a proposal that would require large government contractors to disclose emissions and set reduction targets.

Find out how our software enables companies to manage climate data and accelerate decarbonization.

It is already a legal requirement for many companies to report on their climate impact. Many more will have to do so in the near future as reporting legislation expands its reach. Not only regulation demands companies to disclose their climate data – investors and business partners are increasingly searching for comparable climate key figures. Speaking of comparable – another key point of discussion was the… 

Standardization of climate disclosure

Today’s differences of reporting formats and standards makes it difficult to compare the climate performance of companies. Therefore, leaders at COP27 discussed how standardization could be implemented.

Climate Disclosure Standards

The International Organization for Standardization (ISO) launched its Net Zero Guidelines, developed in collaboration between ISO, the UN Race to Zero, and the UNFCCC’s Global Innovation Hub. The guidelines are intended to provide a reference for collaborative net zero efforts. Another framework was presented by Normative. Their Net Zero Score Framework aims to solve the problem of standardization in tracking progress.

While the path to standardization is still underway, companies already have the possibilities to prepare themselves through structured climate data management. 

Find out how our Climate Readiness Check helps you to take the first step toward climate disclosure requirements.

Capital reallocations

Transitioning to net-zero energy consumption while strengthening energy resilience will involve a significant change in capital allocation, costs, and jobs.

An analysis by McKinsey estimates that investments in tangible assets for net zero would need to increase by $3.5 trillion annually by 2050. McKinsey states that these investments would bring growth opportunities. At COP27, leaders discussed how to bring together stakeholders and how the demand for net-zero technologies will change within the next few years.

Several announcements on voluntary carbon markets were made. This drew skepticism from some stakeholders. They raised concerns about the use of carbon credits by companies to avoid emissions reductions. Leaders discussed how we can ensure that carbon markets can fulfill their potential to protect biodiversity, reduce emissions, and mobilize capital for the Global South.

Key takeaways: How will COP27 affect companies?

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