COP28 – How ambitious should the private sector be?

This article was written by Lucy Dugdale-Moore (Specialist Consultant) and Bipasha Ray (ESG and Sustainability Senior Consultant)

The tumultuous two weeks of COP28 negotiations have come to an end with countries agreeing on a deal to transition away from fossil fuels. Fossil fuels were the main topic of conversation at the conference, as the host country, the United Arab Emirates, is an oil-rich nation. Following on from COP27, there was an expectation from many participants and the public that COP28 would make a more pronounced commitment to combat climate change and meet the 1.5 °C target set at 2015’s COP21 in Paris.

But what changes has COP28 really made?

In the upcoming weeks, we expect to see a finalised version of the COP28 deal highlighting the actions and targets necessary to tackle the climate emergency. The initial outcomes of the COP28 include:

1. Transition away from fossil fuels: After several countries refused to sign the initial drafts of the agreement due to its weak, non-committal nature - stating the initial draft needed to send a clearer message on the future use of fossil fuels - on Wednesday 13th December, countries agreed on a deal to transition away from fossil fuels in “a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”. Multiple countries have already criticised the deal for its language on ‘transitioning away from fossil fuels’ rather than including strong and direct language to stress the importance of action to reduce emissions.
2. Countries had varying levels of support for the deal: COP28 saw nearly 200 countries agreeing to the deal; however, some were more on board than others. Over 100 of the 200 countries present in Dubai asked for the first draft to be modified to include mention of fossil fuels phase-out. Large oil-rich economies were supportive of the more flexible relaxed language and proposed actions included in the deal, whilst small island states that are severely impacted by climate change were disappointed and claimed they “weren’t in the room” while the decision was made to approve the final text loopholes that “leave the door open for false solutions like carbon capture and storage and nuclear”.
3. Science refresh: The scientific backdrop to COP28 was hard-hitting. The United Nations Framework Convention on Climate Change expressed severe concern 2023 is set to be the warmest year on record, and accelerated action is necessary to meet targets. To achieve a 1.5 °C goal, the parties were reminded it would need a 43% cut of global emissions by 2030 and 60% by 2035 relative to 2019 levels. Enabling this would require a major increase in targets and policies when countries submit new commitments in 2024.
4. Loss and damage fund: As an update to last year’s agreement, the loss and damage fund was operationalised on the first day of COP28, garnering $700 million in pledges. UAE and Germany pledged $100 million each towards the fund. However, the UK and US only committed $75 million and $17.5 million, respectively, falling short of expectations. The sum of $700 million represents only 0.2% of the irreversible losses that developing nations are grappling with due to the impacts of a changing climate.
5. Nature-based climate action: 18 countries endorsed the Joint Statement on Climate, Nature and People to accelerate the Kunming-Montreal Global Biodiversity Framework (GBF) adopted at COP15 (see our article from November on the GBF here) therefore, emphasising the goal of conserving 30% of the Earth's land and sea by 2030. In addition, the Mangrove Breakthrough goal of protecting and restoring 15 million hectares of mangroves globally gained traction as 21 countries officially endorsed it.

But what does this mean for business in the near future?

The discussions at COP28 have once again amplified the importance of the role of the private sector in helping meet the 1.5 °C target. There is a need for businesses to understand their impact on the climate and how climate impacts business. It is now considered the bare minimum to adapt and mitigate the changes ahead.

Commitment to reducing emissions

Businesses should focus on setting near-term and long-term emission reduction goals that align with the latest climate science and global emission targets. Stakeholders and investors are becoming increasingly aware of the challenges business may face regarding emissions and climate, therefore, setting ambitious targets is a first step in showcasing commitment to the global 1.5 °C target. Disclosing a climate action plan or transition plan that shows the actions management will take to reach the target provides the opportunity for a business to demonstrate its credibility and communicate successful implementation – when achieved - to its customers and shareholders.

Regulation

Climate has become a regular agenda item in boardrooms due to the ongoing shift in voluntary and mandatory climate reporting. Below are two key reporting frameworks that have been developed and issued in 2023 that are expected to become mandated for private companies in the near future.

1. Transition plans

The Transition Plan Taskforce (TPT) finalised its gold standard for private sector climate transition plans in October 2023. As companies set public commitments to reach net zero, climate action plans are crucial for stakeholders to assess their credibility. In line with the Taskforce for Climate-Related Disclosure (TCFD) recommendations, climate transition plans are expected to become mandatory, with the UK Financial Conduct Authority (FCA) announcing it is consulting on expectations for listed companies.

2. ISSB

The new International Sustainability Standards Board (ISSB) framework had support from the TCFD, Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (which consolidated the Integrated Reporting Framework and SASB Standards before itself falling under the ISSB) on its release in June 2023. The ISSB is not currently mandated, but there is speculation that businesses will be legally required to adopt the framework as it brings multiple reporting standards (IFRS S1 and IFRS S2) into one framework. Currently, TCFD is mandated by the FCA and the UK Government for large UK companies.

Where next?

As with any negotiation, not every attendee got what they wanted, but most will have left Dubai with some sense of partial achievement. Where the UN goes from here (as it now sets its sights on COP29, scheduled to be hosted next November in Azerbaijan) is perhaps best summed up by its climate chief Simon Stiell who claimed “genuine strides forward” were made, but the initiatives announced are “a climate action lifeline, not a finish line”. He stated that, “while we didn't fully turn the page on fossil fuel, this is clearly the beginning of the end”, expressing that “this agreement is an ambitious floor, not a ceiling. So, the crucial years ahead must keep ramping up ambition and climate action”. And companies’ own visions, commitments and activities should be seen in that same context or, to paraphrase the poet Robert Browning, what they can reach for needs to exceed what they can merely grasp at.