Session Outputs for January 29, 2020
National negotiators at COP25 (the 25th "Congress of Parties" held by the UN Framework Convention on Climate Change, or UNFCCC) failed to finalize the Paris Agreement rule book last November in Madrid. This was due to a combination of political and technical disagreements on how to conclude the design of "Internationally Transferred Mitigation Outcomes", the mechanism that would allow for trading of tonnes of greenhouse gas emissions (measured in carbon dioxide equivalents) among countries in the pursuit of meeting their Nationally Determined Commitments (NDCs).
Businesses looking for clarity were left, for now, with continuing ambiguity on what he future held for them in terms of carbon emission policies.
With the talks stalled till COP26 in Edinburgh, the major takeaway from our contributors at the fourth session of “From Vision to Action: Sustainability in Business" on what's next for climate action is that:
There are difficult decisions to make for countries navigating their NDCs and national energy mix
but new and emerging options exist in the market
and there is a high possibility of an "Inevitable Policy Response" arriving in the next two years despite despite COP25 being inclusive,
thus companies need to be prepared for unexpected changes
Session presentation: What Will the Next Phase of Climate Action Bring?
Our full session synopsis:
TOP LINE
Resolving the issue of climate change at COP or elsewhere has to involve the private sector, because most CO2 emissions and other greenhouse gas come from corporate activities
Banks and investors face two kinds of risk around the COP negotiations
-- Transition risk, from society moving toward a low carbon model, or consumer expectations changed about the how their goods and services are provided
-- Physical risk, from extreme weather events, loss of biodiversity or other degradation of the natural environment
If there is no COP agreement, the traditional risk is lower, but the physical risk could be higher; with a COP agreement, the opposite is true. So investors and businesses need to balance out the two possibilities
The Inevitable Policy Response
With or without you
Several participants introduced the idea of what PRI (Priniciples for Responsible Investing) calls the “Inevitable Policy Response” (IPR). As we anticipate an acceleration of extreme weather-related or ecological-related events, "governments will be forced to act more decisively than they have so far" and voters will be there to support them.
PRI believes that "The question for investors now is not if governments will act, but when they will do so, what policies they will use and where the impact will be felt. The IPR project forecasts a response by 2025 that will be forceful, abrupt, and disorderly because of the delay."
Part this could manifest itself in unexpected and extreme ways in which people choose to address such issues. Take, for example, what happened with Brexit, the seemingly unintended consequence of British Prime Minister David Cameron's referendum. Brexit was something that, arguably, business did not want, but, due to political pressures, the public was asked to consider, and then voted on in a way that was not in accordance with the wishes of business.
This kind of "inevitable" policy change can happen also in terms of climate-related risk, leading to outcomes that we never anticipated. As a business, you'll have to find a way to be prepared for such eventualities.
The research wings of financial institutions are now looking at this possibility and hypothesizing that there's going to be a very significant shift in policy globally addressing climate change within the next 24 months, and maybe even happening sooner than anything that the the policymakers at COP26 can come up with.
The market is offering solutions
There are other forces on the move. Bloomberg NEF's forecasts show a number of positive trends for less carbon-emission intensive practices:
In 2050, renewable energy will dominate 2/3 of the market
In 2019, 5 million EV has been sold (increasing) and in 2040, half of all cars sold will be EV
Energy intensive industries, including Iron and Steel, Cement and Chemicals will soon have clean alternatives with hydrogen, electricity and other solutions
See Bloomberg NEF for more information
Investors encourage greater ambition
CDP was at COP25 to encourage countries and participating companies to raise their ambitions for reducing carbon emissions. The organization, formerly known as the Climate Disclosure Project, is comprised of more than 525 investors globally who request that corporations provide environment information that is in line with the recommendations of the Taskforce for Climate-related Disclosure.
CDP promotes Science Based Targets ( SBTi), in partnership the UN Global Compact, WRI and WWF, as a way for companies to future-proof their growth by specifying how much and how quickly they need to reduce their greenhouse gas emissions.
The situation in Japan
The energy mix and the energy transition
Japanese banks are looking to the Ministry of Economy, Trade and Industry to understand how the energy landscape might change and what are the related risks that they may face. METI has highlighted that:
Japan produces less than 10 percent of its required energy locally
For now and the foreseeable future, METI expects the country to be largely dependent on fossil fuels such as oil, coal and LNG
The ministry partially attributes this dependency on the fragmented nature of the nation's power grid
Banks are particularly concerned about their financing of coal-fired power plants, both domestically and internationally, due to the messages that they are receiving at climate change events such as COP25 ('Env. Minister Koizumi annoyed by 'fossil award' media coverage', Feb. 1, 2020); investor-driven industry organizations such as TCFD; and activists focused on reducing investment in fossil fuel projects, such as environmentalist Bill McKibben's 350.org.
Nuclear power is another sticking point in Japan. Powerful and still active politicians staked their careers on building nuclear projects in poorer regions, and failing to restart the plants equals an admission on these leaders' part that they were wrong. Yet, while there is still a desire in such quarters to turn these power sources back on, its well known that as soon as they attempt to do so, lawsuits will be filed again to stop any restarts from happening.
Thus policymakers are unable to decide once-and-for-all whether to recommit to nuclear or turn away for good to new energy sources. In the midterm, per METI, they still envision the use of coal and, increasingly, natural gas as their fallback position. And, as a result, they have not invested in renewable energy sources because they are not been able to formulate a greater vision for what to do.
Still, among Japanese corporations, renewable energy demand is high. Some are even making it their mission to generate their own renewable energy. But the available land is small, the energy industry is not moving forward with them, and development faces obstacles. So even though corporations are trying to address climate change and want to head in a new direction, there currently is a gap between them and the energy industry.
— Next steps
NDC-SDG Connections by the German Development Institute
On a national level, climate actions formulated in the Nationally Determined Contributions (NDCs) can be made to correspond to each of the 17 Sustainable Development Goals (SDGs) with the NDC-SDG Connections tool. This is a useful way to understand where a country is committing to make the greatest efforts at reducing greenhouse gas emissions.
To discover opportunities for your company, search the Drawdown Project, which identifies and ranks by impact the most viable global climate solutions. The Drawdown Project was launched by entrepreneur and environmentalist Paul Hawken, the author of “The Ecology of Commerce” (1993). Each solution was developed by a team of academics and other subject mater experts and is presented with relevant references and a technical summary that includes the Addressable Market, Adoption Scenarios, Financial Models, Impact, Limitations and more.
Find more materials on climate action, business and carbon emissions policy, and how businesses are embracing sustainability at the 'Vision to Action' Resource Center
Read the Air—Trista Bridges and Donald Eubank are cofounders and principals of Read the Air, a Tokyo-based specialist advisory service that enables companies to put sustainability at the core of their business, for purpose and profit. Read the Air guides commercial enterprises in designing, implementing and executing powerful business strategies that create sustainable business models.
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