Over 120 world leaders and representatives from nearly 200 countries gathered in Glasgow to assess global efforts to fight climate change at the 26th meeting of the Council of Parties to the UN climate convention ("COP26"). COP26, held from October 31 to November 12, 2021, saw the unprecedented participation of the private sector, especially from resource intensive industries.
The primary outcomes that COP26 set out to achieve were:
- to secure a commitment to net zero by 2050, including an ambitious reduction in emissions by 2030;
- to adapt and protect communities and local habitats;
- to mobilize global finances by both developed countries and international financial institutions; and
- to increase collaboration among stakeholders and finalize the Paris Rulebook.
After two weeks of negotiations, participating nations agreed to adopt the Glasgow Climate Pact (the "Pact") which finalized the Paris Agreement, with the goal of mitigating further global warming. The Pact acknowledges that human activity has already caused 1.1 °C of global warming and that current efforts are insufficient. Key aspects of the Pact include the increased sense of urgency to enhance ambitions, the scaling up of climate and adaptation financing, the transition to low-energy systems, and the further protection and maintenance of the current ecosystem. Among mitigation efforts included in the Pact is the phasedown of coal power and the phase-out of inefficient fossil fuel subsidies. The Pact calls upon the private sector to mobilize finances to assist with delivering the climate action plans and further exploring innovative approaches.
Frustrations with the lack of urgency displayed by global leaders, activists and the private sector alike during COP26 suggests that success in mitigating climate change will not be measured by what promises state actors have made, but by how rapidly the private sector chooses to act. Although not included in the Pact, the majority of private sector participants agreed that tangible objectives, measurable goals and comparable metrics are key to combatting climate change and are good for business. With increased demands to create a broadly applicable set of environmental, social and corporate governance ("ESG") standards, the private sector is on its way to becoming the true champion of sustainable development.
Below are some key trends and outcomes from COP26 that may have implications for Western Canada and nationwide.
Creation of the International Sustainability Standards Board Signals Progress Towards the Consolidation of Climate-Related Disclosure Standards
Due to increasing calls from investors and companies for more transparent and comparable ESG reporting, on November 3, 2021 at COP26, the International Financial Reporting Standards Foundation ("IFRS") announced the creation of the International Sustainability Standards Board ("ISSB"). The purpose of the ISSB is to set a global baseline for the provision of comprehensive sustainability disclosure standards to meet investor' information needs. The IFRS has selected Montreal as one of the cities to have an ISSB office, providing a Canadian presence. Consultation with various stakeholders is ongoing; the work of the ISSB will set global ESG reporting standards for ESG reporting.
With the formation of the ISSB, further consolidation of ESG standard setters is occurring simultaneously. Most notably, the IFRS (a global not-for-profit organization established to develop a single globally acceptable set of accounting practices) will consolidate the Climate Disclosure Standards Board ("CDSB") and the Value Reporting Foundation ("VRF") by June 2022. The CDSB had developed frameworks for reporting environmental information. The VRF also provided reporting frameworks, including the SASB Standards, which contain industry-specific sustainability standards.
Significant Private Capital Commitment by the Glasgow Financial Alliance For Net Zero ("GFANZ") affirmed the Pivotal Role of Sustainable Finance to Achieving Net Zero
Access to capital is increasingly being tied to climate-related reporting and ESG initiatives as evidenced strongly in GFANZ' commitment to net zero by 2050. Launched in April of 2021, GFANZ is a coalition of leading financial institutions committed to accelerating the decarbonization of the economy. GFANZ is an alliance committed to reaching the goals of the Paris Climate Agreement. Members that sign onto the GFANZ agreement promise to follow 24 initiatives aimed at strengthening the resources required for the global financial system to transition to net zero by 2050. During the first week of COP26, the private capital committed through GFANZ reached over $130 trillion. Six of Canada's largest banks have joined GFANZ. GFANZ presents a significant opportunity for Canadian businesses to obtain low-carbon financing. There may also be significant new carbon disclosure requirements for Canadian businesses when they deal with their banks and financial institutions; as such, stay tuned for an upcoming publication from MLT Aikins on GFANZ.
Indigenous Involvement at COP26 and Beyond
COP26 only minorly recognized the importance of Indigenous communities' involvement to reach sustainable development goals. For its part, Canada supported the Global Forest Finance Pledge and the Declaration on Forests and Land Use; both of which support the involvement of Indigenous Peoples in combatting deforestation. Overall, however, the opportunity for Indigenous involvement at COP26 was relegated to side-events. As Canada navigates a path towards Truth & Reconciliation, it is evident that Indigenous communities must be included when laying the ground work for initiatives to combat climate change. In recognition of this important topic, stay tuned for a more in-depth publication from MLT Aikins regarding Indigenous participation in negotiations.
Canada Joins More Than 100 Countries in Pledge to Reduce Methane Emissions
Prime Minister Justin Trudeau reaffirmed Canada's support for the Global Methane Pledge. The objective of the Pledge is the reduction of total methane emissions by 30% below the 2020 levels by 2030. Canada also committed to reducing methane emissions in its oil and gas sector by 75 percent below 2012 levels by 2030. Canada's pledge revises its former commitment made in 2016, to reduce methane emissions by 40-50% below 2012 levels by 2025. For the oil and gas industry this will mean implementing additional strategies to tackle leaks and reduce non-emergent flaring and venting.
Canada Caps Oil and Gas Sector Emissions
The Prime Minister announced a cap on oil and gas production emissions and reducing pollution from the oil and gas sector to net zero by 2050. There are no details yet on how the cap will work or when it will be in place.
Proposed Climate Pact Between the United States and China
China and the United States announced that the two countries have agreed to boost climate co-operation. The leaders of the two countries are set to meet in the near future to discuss specifics around their joint declaration. Preliminary discussions between the nations focused on a range of issues such as methane emissions, the transition to clean energy, and de-carbonization. As two of Canada's largest trade partners, the final agreement that is reached between China and the United States could greatly impact Canadian businesses.
If you have any questions about how the outcomes from COP26 may affect you or your organization, we encourage you to reach out to one of the lawyers in our Energy Practice Group.
Extra Thoughts
As companies driving infrastructure and project work are committing to addressing climate change, requirements for downstream skills, technology and innovation to address climate change in every project are exponentially in demand. We are moving into a world where having a strategy and program to address ESG is not a choice but an expectation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
