Vol 19 (2022) - Issue 2

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COP26 Implications for Corporates: What Does Implementing Transition Requirements Mean Now

Synopsis
The Glasgow Climate Pact ('GCP'), the formal negotiation outcome from United Nations Climate Change Conference no. 26 (COP26), contains notable developments for corporates in three areas: mitigation and adaptation, climate finance, and implementation. The GCP is signed by 197 countries. It sets the themes for COP27, to take place in Egypt later this year. Additionally, in Europe market participants (corporates, financial services institutions) are regulated as of March 2021 under the Sustainable Finance Disclosure regulation (SFDR), and separately the EU taxonomy, to disclose and identify distinctly environmentally sustainable business activities.
Over the past years, such policies have already released a cost wave for corporates: the price of corporate CO² emissions has increased, and the higher CO² price leads corporates having to increase their production in a more climate friendly way. So far this has led to a climate positive cycle in the economy, and arguably due to changing industrial and household consumer preferences, corporates have been able to pass on (some of) the cost of green production onto their customers.
Yet the COP26 agenda must now be advanced by corporates in a tighter timeline in 2022, when the general macroeconomic environment may increasingly be characterised by rising input prices and financing costs.