25 November 2021
As many commenters weigh in regarding the specific outcomes, achievements and disappointments of COP26, it is helpful to reflect how climate change as an issue has changed so dramatically over the past 25 years. Still considered by many to be an ESG (environment, social and governance) issue, COP 26 has demonstrated how climate change has become a multifaceted challenge across society and influences a wide range of disciplines.
More than any other COP to date, COP 26 has demonstrated the incredible political interest in climate risk and the continuing challenges of dealing with decarbonisation, setting targets for future action and adaptation. But amidst the politicking and posturing, there is genuine concern and recognition from the world’s leaders that they must take action.
As evidenced by the debates and commentaries arising from the Conference, restricting warming to 1.5°C remains an incredibly ambitious goal. Still, every fraction of additional warming beyond 1.5°C will result in increasingly severe and expensive impacts.
An important distinction is that pledges for carbon-neutrality (which allows for emissions to be created with no specified level of reduction required) are very different from ‘net-zero’.
Net-zero requires all available technologies to be used to reduce baseline emissions, and only emissions that are ‘hard to decarbonise’ may be compensated with offsets, which explains, in part, the difficulty of achieving net-zero in shorter timeframes.
Government financial regulators and stock exchanges worldwide are issuing guidance emphasising the importance of considering climate change – not just as a matter of corporate sustainability - but as a matter that should be regarded as part of the preparation of the annual reports and subject to audits. New Zealand, the UK and other countries are taking this further with national laws mandating climate disclosure.
COP 26 announced the formation of an International Sustainability Standards Board (ISSB). The ISSB will develop—in the public interest—standards that result in a comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.
This includes a specific climate disclosure standard that is consistent with the recommendations of the Taskforce on Climate-Related Financial Disclosure (TCFD) as the globally accepted standard for assessing and reporting on climate risk.
In Australia in 2016, Noel Hutley SC and Sebastian Hartford-Davis provided an opinion considering the extent to which the duty of care and diligence imposed upon company directors by s 180(1) of the Corporations Act 2001 (Cth) permitted or required Australian company directors to respond to climate change risks.
The Centre for Policy Development (CPD) has recently updated that opinion to note that:
The risk for directors has only increased since the original opinion was issued in 2016, …and it will be 'increasingly difficult' for directors to 'pretend that climate change will not intersect with the interests of their firms'. Further that there are, 'significant and well-publicised risks associated with climate change and global warming that would be regarded by a Court as foreseeable'. These risks 'require engagement from company directors', especially directors in the banking, insurance, asset ownership/management, energy, transport, material/buildings, agriculture, food and forest product industries.
Further legal research undertaken by CPD notes that public authority directors likely have duties of care and diligence to consider climate risk in their activities, ‘which are at least as stringent as the duties of private corporation directors’*.
For those companies, government-owned corporations, and governments that disclose their climate risk, the antecedent emerging liability is called ‘greenwashing’.
Greenwashing is mainly a concern for organisations making pledges toward ‘net zero’ or other aspects of climate resilience that are not backed up by any robust planning, implementation strategy or budget.
Renewables and new technologies sit at the heart of a transition to a low carbon economy. However, tremendous advances still need to be made in terms of mainstreaming carbon capture and new renewable technologies like hydrogen and ammonia powered vehicles.
While the world continues to invest in these technologies and source the critical, new economy minerals that will be required for the carbon transition, such as silica for solar panels, the logical starting point for most organisations will be to understand where their current and future GHG emissions are coming from across Scope 1, 2 and 3. Scope 3 emissions are particularly problematic as accurate calculation requires a deeper understanding of indirect emissions associated with an organisation’s supply chain and how others will use its products and services that produce emissions. Better standards for emissions accounting will be needed to resolve how much new technology and renewable energy is required to achieve ‘net zero’.
When will we start to see the physical impacts of climate change? Where will the effects occur? What consequences of more extreme weather on an organisation’s assets, operations, and workforces? These are all questions that require a risk-based approach using hazard mapping and other tools to understand the likelihood of the climate risk occurring, but equally important to assess the consequence of those climate impacts over time.
With national climate policies and company climate disclosures often ‘glossing over the actual cost of physical risk, much more work is needed here at the local or asset-site level to understand current risk and what can be done now to build resilience and reduce escalating damage costs in the future.
While stopping short of an absolute commitment, more than 100 world leaders promised to end and reverse deforestation by 2030 at COP 26, which is a significant advancement from previous COP commitments and is substantial as felling trees depletes forests that absorb vast amounts of the warming gas CO2.
However, net-zero pledges will require much more than halting the decline, with nature-based solutions needed to restore and expand natural ecosystems that absorb carbon dioxide from the environment. These solutions include:
But where are these nature-based projects in which to invest? Are they at a sufficient scale to meet what will be global-level demand for carbon offsets and net reduction? How does the investor know the compensation is really happening and manages ethically?
In most jurisdictions, planning for broadscale rehabilitation has not been done. But there are significant opportunities to generate employment and natural resource management skills as part of ‘green infrastructure’ projects and create revenue from the sale of the completed carbon credits. Nature-based solutions to climate change will also have a range of secondary benefits to biodiversity, clean water, clean air and stability of landforms.
While work done on carbon offsets by the Qantas Group in Australia shows what the private sector can achieve, the real opportunity here is for governments to lead and then facilitate in partnership with traditional owners and custodians of land and waters reforestation and blue carbon opportunities.
This COP, more than any previous iterations, has generated significant public interest and stirred considerable debate across all media platforms, which is a substantial contribution to supporting climate change action to be mainstreamed across the globe and for specific climate change challenges to be raised. Stakeholder awareness and concern will ensure that climate change is considered by governments, businesses and industries, and communities. This includes compensation for loss and damage occurring when climate impacts exceed the adaptive capacity of countries, communities and ecosystems.
So as the door closes on another COP, it is clear that climate change has evolved far beyond its ESG roots and now requires a whole range of skills and expertise. Moreover, all of these disciplines will be needed to move towards the bigger picture of climate solutions.
Are you interested to know more about any of the issues raised in this article? Reach out to one of our experts.Read more about corporate director responsibilities in Australia
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Global Lead Climate Risk and Resilience
Global Lead Climate Risk and Resilience
Greg is a Senior Associate at BMT and leads the firm’s global campaign related to climate risk and resilience. Based in Brisbane, Australia, Greg has over 25 years of experience in natural hazard and climate change planning and adaptation studies with planning, transport, and conservation authorities.
Climate Change Adaptation
Climate Change Adaptation
David has significant experience in climate change risk assessments and adaptation
planning, coastal zone management, coastal ecology and water quality. David has contributed to the development of guidelines to support resilience and adaptation planning in a variety of sectors including the NRM sector, the investor sector and the coastal sector. In addition to his work at BMT, David has led large projects at Griffith University (NCCARF) and for the Queensland and NSW state governments. He has been a member of several National expert groups and has experience delivering training courses and stakeholder engagement activities.
David is an Adjunct Professor at Griffith University, and is strongly involved in the Blue Economy CRC, as a member of the Scientific Advisory Committee, leading a project and participating in several others. He is a member of the Australian Ocean Energy Systems Working Group, and is active in the Australian Ocean Energy Group. David is a Non-Executive Director of Green Cross Australia which focusses on community resilience and sustainability. David is a Graduate of the Australian Institute of Company Directors.