Purpose on Payday

By Sophie Morello

It’s been an historic month. We have witnessed the biggest international summit the UK has ever hosted, culminating in the Glasgow Climate Pact which keeps the 1.5C global warming target alive (just), but only if carbon reduction plans go further and current commitments are met. It was not the world-saving finale we had all hoped for at COP26 and keeping a lid on climate change still hangs in the balance.

COP26 President Alok Sharma expressed his deep disappointment in the final agreement, fighting back tears as he apologised for how the negotiations had concluded with a bitter compromise on coal being ‘phased down’ rather than ‘phased out’. However, the very mention of fossil fuels was notable and getting agreement to decrease their usage was an improvement on previous COP summits. Some significant announcements were made, including the landmark deal between over 100 countries to end deforestation by 2030, with Brazil being one of the signatories. There was also an agreement amongst 24 countries and major car manufacturers to stop selling fossil fuel vehicles by 2040.

There were major developments that will directly impact UK businesses too. The UK government announced that by 2023 all FTSE listed UK companies will need to report a net zero transition plan. The plans will need to include targets to reduce greenhouse gas emissions, and the steps that firms intend to take to get to net zero. A new International Sustainability Standards Board was launched (by the IFRS) which will implement new sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks.

This is far from the end of COP. With the UK’s COP26 Presidency continuing until Egypt takes over for COP27 in November 2022, there will (hopefully) be no let-up in the level of climate ambition. Targets must be checked, adhered to and furthered; regulation formalised and put into practice. With the COP26 legacy still to play for over the next 12 months, we expect the sustainability agenda to continue to be as lively as it has been in 2021.

For businesses, we expect there to be greater pressure for transparency and for having a robust plan in place to decarbonise and align not just with net zero targets but also science-based targets (which focus on keeping emissions to a level that meets the 1.5C goal). Investors, activists and NGOs will, in our view, be increasingly critical of corporate reporting standards and accusations of greenwash will be a constant reputational risk. There is no time to draw breath and forget about COP26. The momentum for the green transition is well underway and businesses must get their plans in place.