This briefing highlights the key outcomes from this year’s United Nations Climate meeting, COP27, how it may affect you as a non-executive board director, and the resulting conversations you should have in the boardroom.
COP27 background and key ambitions
The United Nations global climate conference in Sharm El Sheikh, Egypt, COP27, concluded on 20th November 2022. It gathered country, public and private-sector leaders from all over the world with the aim of negotiating and increasing commitment to limit global warming to 1.5oC as stated in the Paris Agreement.
COP27 had an important focus on implementation: moving from setting goals to taking credible action to achieve net zero targets. Being held in Africa, key points on the agenda included gaining agreement to support emerging economies in their net-zero transition (referred to as the Just Transition) and also to support those already seeing the devastating impacts of climate change with few resources to address these impacts (termed Loss and Damage).
Key outcomes from COP27 and their relevance to board members
If current pledges by national governments are fully implemented, the world would be on track for 2.5°C warming by the end of the century. Therefore to keep 1.5°C alive, business has a crucial role to play to increase ambition and boards are critical in driving this change.
COP27 achieved several breakthroughs, including the first Just Transition Energy Partnerships (JETPs) and an agreement to provide loss and damage funding to vulnerable countries. However, the global meeting received criticism for the lack of progress at country level to keep within 1.5°C of warming by 2050, and to view this as a limit not a target. Private sector initiatives called for greater government action on climate change including the We Mean Business Coalition and a coalition of 602 investors representing $42 trillion in assets under management, in their 2022 Global Investor Statement to Governments on Climate Change.
The important role for businesses to deliver and drive climate action throughout their operations and industries has never been more urgent and was made clear by the active business participation at COP27. The role of boards in guiding their executive teams and stewarding their companies in the net zero transition will be crucial to keeping the world within the 1.5°C limit.
Key takeaways for board members from COP27
Official regulatory bodies are working hard to clarify and harmonise standards for climate-related reporting which will support transparency and help to combat greenwash
The International Sustainability Standard’s Board (ISSB), part of the IFRS (International Financial Reporting Standards), announced a new Partnership Framework to increase alignment between standards. As part of this partnership, CDP will incorporate ISSB climate-related disclosure standards into its global environmental disclosure platform.
ISSB also announced that companies will be required to use climate-related scenario analysis to inform resilience analysis
Key questions for non-executive board directors to raise on climate reporting and disclosure:
- Is your company undertaking materiality analysis and risk planning with climate challenges included? How is this reported to the board?
- Which climate scenarios does your company use in its materiality analysis? Which board member(s) have reviewed the impact of the scenarios?
- Does your company collect and report climate impact data? How is this reported to the board?
- Is the company adhering to any of ISSB’s disclosure standards? Who from the board understands and guides climate disclosure?
- How will the ISSB Partnership Framework affect your company’s approach to collecting and disclosing data?
- Is your CEO requesting and receiving regular reports on your company’s climate-related risks? Is your CEO aware of how changing regulation may affect how your company must report and disclose climate-related information?
Acting on climate targets and developing credible action plans was an important focus of COP27
Tools and guidance for businesses to create and implement climate action plans were released by key initiatives including the Glasgow Financial Alliance for Net Zero (GFANZ) which published recommendations and guidance for financial institutions; as well as the Transition Plan Taskforce (TPT), announced at COP26 by the UK government, who collaborated with international partners, such as GFANZ and ISSB to develop a disclosure framework with implementation guidance for companies and financial institutions to develop gold-standard transition plans.
Key questions for non-executive board directors to raise on transition planning:
- Does your company have a clear net-zero transition pathway, with short- and medium-term targets in place?
- Who is responsible for the net-zero transition plan and is it embedded across the organisation, with accountability at CEO level as well as operational levels?
- Does your board receive regular updates on the organisation’s progress against its climate targets?
- Is your board linking C-suite and executive compensation to your company’s progress on its climate targets? How effectively does this incentivization support your company in meeting its climate targets?
An increasing number of organisations are facing legal challenges for not providing credible pathways and action plans to support and achieve their net zero targets
A list of robust recommendations have been published by the UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities to guide and support businesses to set and attain their net zero targets, and not be undermined by greenwash. These recommendations align with a set of Net Zero Guidelines also published at COP27 by the International Organisation for Standardization (ISO), which offers a single core reference text for credible net zero action.
Key questions for non-executive board directors to raise on accountability to avoid greenwashing claims:
- Are your company’s net zero targets backed up by credible action plans? How are these targets and their associated pathways reported to the board?
- What frameworks has your board put in place to ensure there is accountability in meeting your company’s climate targets? Does this accountability apply at CEO level as well as operational levels?
- Is your board aware of any legal risks it could face, should your company face greenwashing claims on its net zero targets?
- How is the board ensuring that the CEO delivers on the climate action pledges? Is the CEO receiving regular updates on the progress of these plans?
The importance of public-private sector partnerships and international collaboration was reinforced over the two weeks of COP27
Businesses should engage and collaborate with state actors throughout their supply chain and with private-sector actors within and across industry, to reduce emissions across the whole value chain of their organisation. The Yearbook of Global Climate Action 2022 from the Marrakech Partnership, provides an outline on how to accelerate sectoral systems transformation, with case studies and recommendations, by strengthening international collaboration in the sectors from both parties and non-party stakeholders.
Key questions for non-executive board directors to raise on collaboration:
- How is your organisation engaging with suppliers and customers to reduce emissions across its whole value chain? How are these emissions reductions reported to the board?
- How is your organization working in collaboration with others to mobilise climate finance into projects reducing emissions? Is your board aware of the climate impacts of its investment portfolios and actively choosing to transition towards net zero or climate positive investments?
For further detail on the reports and initiatives launched at COP27, please see below.
What are the upcoming priorities for board directors?
Board directors have a critical role to play in guiding their company and its ecosystem to deliver climate action and keeping the 1.5oC limit within reach. There are tools and techniques a board director can leverage to make this happen, from requesting clear climate targets and net zero transition pathways, to ensuring the relevant climate-related data is reported to the board and CEO, to incentivising executives.
The Climate Governance Initiative supports boards of directors across the globe in making climate a boardroom priority by promoting the implementation of the Principles for Effective Climate Governance. The Initiative’s resources are board-focused and support directors at all stages of their climate journey. To follow the theme of COP27, and ensure that businesses are moving from ambition to action, read Ambition to Action: Briefing for Board Directors which summarises the four basic requirements for board directors to guide their companies to take credible climate action.
For guidance on how Chairs can influence climate action, insights and inspiration are shared in the guides The Chairpersons perspective: Shaping the boards strategic direction on climate and The Chairpersons Guide to a Just Transition.
Looking to the year ahead
In December 2022, Montreal will host the UN Biodiversity Conference (COP15) with the aim to adopt and agree the post-2020 Global Biodiversity Framework to halt and reverse nature loss. It is expected that this year’s biodiversity COP will bring together more businesses than ever before, signalling the private sector ambition to reduce nature loss and enhance biodiversity, and also emphasising the intrinsic links between action on climate and action to protect and enhance nature.
Next year’s UN global climate meeting, COP28, will be hosted in the United Arab Emirates and significantly mark the end of the first Global Stocktake. This stocktake process began at COP26 and will inform the 2025 Nationally Determined Contributions (NDCs) to ensure the levels of ambition align with the requirements to reach the goals of the Paris Agreement. It will be crucial to ensure the accountability of climate commitments from businesses, investors, cities and regions, and will provide an opportunity for non-state actors to offer solutions to challenges faced by governments.
For further information…
COP27 Scorecard: Progress at a glance
Setting the scene for COP27
Ahead of COP27, a number of important global reports were published. The Secretariat to the UN Framework Convention on Climate Change (UNFCCC) published its 2022 NDC Synthesis Report summing up the climate pledges of 193 parties under the Paris Agreement to show the world warming 2.5oC by 2100, 1 degree higher than the 1.5oC agreed goal. The annual World Energy Outlook report from the International Energy Agency reported a short-term boost in demand for oil and coal, with a longer-term higher demand for renewables to reduce risk and strengthen energy security, following the global energy crisis triggered by Russia’s invasion of Ukraine. The Taskforce on Climate-related Financial Disclosures (TCFD) Status Report encouragingly reported improved engagement from the private sector over the past 5 years, with a steady increase in climate-related financial disclosures, however too few organisations are disclosing in line with all 11 recommended disclosures. The Net Zero Tracker provides transparency and a level of accountability on the progress of pledges by nations, states and regions, cities and companies. These reports and tracker, as well as UN Environment Programme’s (UNEP) Emissions Gap Report and World Resource Institute’s (WRI) State of Climate Action report, set the tone for COP27 and amplified the need for urgent climate action
Key items on the COP27 agenda included climate finance, mitigation, adaptation and just transition. However, a last-minute and first time addition to the agenda was Loss and Damage, which refers to the impacts of climate change that are already causing devastation, and which countries can do little to adapt themselves to. UN chief Antonio Guterres stressed that loss and damage “can no longer be swept under the rug” and developing countries who have contributed the least to the climate crisis have been blindsided by the impacts “for which they had no warning or means of preparation”. Denmark became the first country in September 2022 to offer ‘loss and damage’ compensation for those in the most climate vulnerable regions.
The devastating physical impacts of climate change in 2022 alone, including floods in Nigeria and Pakistan, wildfires across Brazil and Europe, and droughts in China and the US, will not only directly impact businesses in the affected regions, but also disrupt several aspects of an organisation’s global value chain. These impacts supported the priority for adaptation on the COP27 agenda and a clear need for businesses to engage and invest in this topic moving forward. The Briefing Paper: Critical Business Actions for Climate Change Adaptation, published by the World Economic Forum, highlights the need for businesses to take action in this space and provides a framework for businesses to follow.
Key outcomes from COP27
- Climate Finance was front and centre at COP27 with significant pressure on developed countries for failing to deliver the $100 billion a year of climate finance promised to developing countries by 2020. Several experts including the Organisation for Economic Co-operation and Development (OECD) indicate that the $100 billion goal would be achieved by 2023 and surpassed thereafter. With this goal set to be met 3 years late and with the help of multilateral development banks, the focus now shifts towards mobilising the $1 trillion needed per year in external finance by 2030.
- A report from the Independent High-Level Expert Group on Climate Finance convened by the COP26 and COP27 Presidencies, and the UN Climate Change High Level Champions, highlights the significant role for government action and policies to foster climate investment, and a complementary role for the private sector, to support a new roadmap on climate finance to mobilise the $1 trillion per year by 2030 for emerging markets and developing countries (EMDCs) .
- A report looking at mobilising capital into emerging markets and developing economies commissioned by GFANZ outlined the state of energy transition investment and the opportunities available for public-private engagement to accelerate the transition and mobilise capital.
- GFANZ also published a series of reports to provide recommendations and guidance to financial institutions in developing and implementing credible, high-ambition strategies to achieve the Alliance’s goal of net zero emissions by 2050. Although members of GFANZ must commit to some UN Race to Zero criteria, the Alliance has come under recent scrutiny for removing the requirement to be a member of the UN Race to Zero campaign.
- After previous COPs focused on countries setting clear targets to achieve the goals set out by the Paris Agreement, COP27 was under pressure to ensure parties have credible plans in place to implement the actions required to achieve these targets. Convened by the WRI and Bezos Earth Fund, the Systems Change Lab was launched and tracks global progress across nearly every major system, highlighting current action on climate.
- The Breakthrough Agenda, a coalition of 45 world leaders launched at the COP26 World Leaders’ Summit, set out specific ‘Priority Actions’ at COP27 to speed up the decarbonisation of power, road transport, steel, hydrogen and agriculture to be delivered by COP28. The Agenda has mapped the international public and private initiatives working in each sector and how their main workstream for the year to come will progress these actions.
- Mitigation has previously attracted the most climate-related finance, however as highlighted in the previous section, adaptation was high on the agenda at COP27. The severe climate-related impacts felt globally support the need to scale up finance for adaptation measures. The COP27 Presidency, in collaboration with the Marrakech Partnership launched the Sharm El-Sheikh Adaptation Agenda to increase resilience of 4 billion people. Several more initiatives supporting global climate adaptation launched or published plans at COP27, including:
- The UN Early Warnings for All initiative’s Executive Action Plan, outlining the investment required to provide a global early warnings system against increasingly extreme and dangerous weather was well received by both public and private sectors.
- The World Meteorological Organisation supported the launch of the Action for Water Adaptation and Resilience (AWARe) initiative, drafted by the COP27 Presidency to improve water supply and promote collaborative water adaptation action.
- The Food and Agriculture for Sustainable Transformation Initiative was launched by the COP27 presidency. A multi-stakeholder partnership with a goal of implementing concrete actions to improve climate finance contributions to transform agriculture and food systems by 2030, to support adaptation and maintain the 1.5 oC pathway whilst supporting food and economic security.
- The first ever Just Transition Pavilion was hosted at COP27 by the International Labour Organisation (ILO) and the European Commission. It was opened with the launch of the first Green Jobs for Youth Pact by the ILO in partnership with the UN, to close the skills gap for young people in developing countries and aims to create one million green jobs and support the greening of one million existing jobs.
- After 12 months of negotiations, a Just Energy Transition Partnership, which sees an initial $8.5 billion mobilised from the International Partners Group (consisting of France, Germany, the EU, UK and the US) to South Africa, to decarbonise its economy and meet its ambitious climate goals. This is a global first, and may be the beginning of a series of Just Transition partnerships, as evidenced by the Indonesia Just Energy Transition Partnership launched a week later at the G20 which will mobilise $20 billion over the next 3 to 5 years to accelerate a just energy transition.
Loss and Damage
- Ahead of COP27, the Scottish Government, in collaboration with the UN Climate Change High Level Champions (HLC) and the Global Resilience Partnership hosted a conference to determine the practical action needed to address loss and damage. The report which followed highlighted the structural shift of public and private finance needed to support this agenda.
- COP27 overran by a couple of days as negotiations on loss and damage pursued. The result was a first-time agreement on a loss and damage fund for vulnerable countries hit hard by climate disasters. Although no concrete actions or delivery plans were published alongside this, the breakthrough agreement is a result of decades-long conversations on funding for loss and damage.
- Launch of the Global Shield against Climate Risks – G7 countries agreed to support the V20 (Vulnerable 20 group of finance ministers of 58 vulnerate economies) to support climate risk insurance and prevention, and ensure financial support can be rapidly mobilised in times of climate disasters.