COP26 ensures net zero is a core focus for business leaders

Net Zero Challenge

COP26 ensures net zero is a core focus for business leaders

COP26 ensured that net-zero became a well-established principle for businesses, and climate-based commitments have become an industry standard.

The conclusion of the negotiations at COP26 proved that climate commitments will reshape the global business world. While discussions continue regarding whether the summit accomplished enough results, the focus should now switch to how the public and private industry commit to net-zero plans. 

Following COP26, many people are assessing whether the plans will limit our global temperatures to an increase of no more than 1.5 degrees celsius. This target represents what needs to be done regarding reducing emissions and is equally important to business plans. Many of the net-zero commitments made in Glasgow were delivered from coalitions of investors, stakeholders, businesses and multilateral organisations. In other words, those connected to the systematic problems need to be actively involved to tackle the climate issue. For example, the shift towards a clean shipping industry will require input from multiple stakeholders, from customer service requests and shipping businesses investing in zero-emission vessels to fuel producers focusing on cleaner alternatives and banks supplying the necessary capital. 

 

Switching net-zero goals to net-zero plans

Very few businesses have delivered clear plans on how they intend to reach net-zero. These measures represent a priority to business leaders, especially with investors and regulators demanding more insight on achieving net-zero. The UK Government has already stated that UK-listed businesses will need to release net-zero plans by 2023, and it’s only a matter of time before other regulators and leaders follow a similar path.

 

Until this becomes a formality, business leaders can deliver clear net-zero plans and distinguish their company from others. Competition in the business world is largely influenced by net-zero planning, emission targets and climate management plans. Delivering plans to stakeholders is equally important as leaders want to maintain investor relations and show how the business is moving forward and what they intend to do in the future.

Finance has been at the core of the transition to net-zero, and they continued to be a dominant force at COP26. GFANZ brought over 450 institutions, equating to over $130 trillion of financial assets with a promise to align their portfolios with net-zero targets. A recent study by McKinsey suggests that a transition to net-zero would require in the region $150 trillion of capital spending. The plans believe that capital is forming but deploying it quick enough to reach net-zero is the main challenge.

At a system level, the emphasis should be on scaling markets and groups that can funnel money into supporting decarbonisation and the transition to net-zero. This shift involves developing markets for green commodities and restructuring multilateral development banks. At a business level, leaders will need to build organisations that support markets for zero-emissions products and services.

Financial institutions and governments are asking businesses to provide more information regarding their climate plans. While companies may be hesitant to disclose too much information, it can be beneficial to reveal performance levels. This closer scrutiny of performance and their associated value chains will be possible with new digital technology systems. These technologies could enable businesses to closely inspect where emissions are concentrated, and how to tackle specific areas of a business.

While discussions continue regarding how successful COP26 was, a general path for businesses has been established. The emphasis has been placed on net-zero, providing businesses with a clear direction. The transition to net-zero will be challenging, and a large extent of competition will be determined by those that prepare and react to this transformation. Strategic leaders will support companies in navigating this transition with a clear action plan that incorporates a net-zero future.

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