Representatives from almost 200 countries convened in Paris in December to reach the most significant agreement on climate change since the topic initially surfaced as a political priority some decades ago.
The so-called Paris Agreement calls for limiting global average temperature rise to 2°C and for doing everything possible to curb global warming at a mere 1.5°C, as well as for peaking emissions as soon as possible, emphasising the responsibility of all stakeholders — from civil society to municipal and national governments as well as the business community — to take action. It also touches upon common but differentiated climate action, including a provision requiring developed countries to allocate $100 billion annually to their developing counterparts beginning in 2020.
Apart from taking a strong stance on climate, the Paris Conference can also be considered in many ways as the first test of political will to implement the 2030 Agenda for Sustainable Development — and thus the 17 Sustainable Development Goals (SDGs). The Paris Agreement is holistic in nature, directly linking to the SDGs by including elements referring to climate justice, historic responsibilities, human rights and social equity. Despite being criticized for ambiguous language along with the Paris Agreement, the 17 global goals also outline other key objectives such as ensuring access to water and affordable energy — pressing issues for both national governments and the present day corporate community.
The international commitment on climate change set forth by the Paris Agreement will guide long-term decision-making in the public realm and guide future business strategies. COP21 has already prompted over 100 major businesses to pledge to reduce emissions in accordance with science-based targets. Not a move to be left unnoticed as it will see an average annual reduction of 476 million tons CO2 – equivalent to 125 coal-fired power plants.
Moving from the “what” to the “how,” the next missing jigsaw piece will need to consist of cross-sector partnerships that accelerate the implementation of transformational, low-carbon solutions. Governments must ensure and facilitate technology transfer from the private sector to the public sector and foster the desired upward spiral of ambition and impact at scale, especially in developing countries.
Put simply, private sector action will be a must when translating policy into reality. Business actors will be the bridge-builders between the high-level goals and the practical implementation path: With a strong focus on performance, companies have the ability to transform aspirations into impacts, constantly monitoring and measuring performance to ensure efficiency and success.
Steps to tackle the global goals and secure long-term business health are already being taken through the development of tools and instruments to assess, manage and reduce carbon-related risks of future strategies, investments and products:
The Swiss Federal Office for the Environment (FOEN) recently commissioned a study on the financial risks posed by climate change for the Swiss equity fund market and pension funds. Working with the FOEN, South Pole Group and CSSP carried out a successful dialogue between private and public sector stakeholders on Switzerland’s economic exposure to carbon risks. The analysis unveiled the impact of the carbon bubble on Swiss pension funds, banks and the economy in general, and provided recommendations for policy makers and investors to minimise these risks. It also exposed the potential magnitude of the financial impact on stock prices once relevant climate change legislation would kick in as it already has in countries such as France.
The private sector’s input has also come into use when designing rating schemes and standards to assess climate impacts, helping the world of climate impact investing reach new heights: CDP, South Pole Group and SP Climate Neutral Investments have teamed up with research partners on a three-year journey to increase mutual fund transparency as a method for addressing climate change. Supported as a Climate-KIC Innovation, the CLIMPAX-project aims to empower individuals to make investment decisions based not only on financial returns, but also on the impact those investments have on the climate.
The inclusive nature of the Paris Agreement will further spark demand for better facilitation between the various stakeholders working together. Translating policy into practical action will not happen without having a common language between the potpourri of parties involved. Luckily, there are already many success cases to learn from: In close collaboration with regulators, businesses and public sector agencies, South Pole Group explored the potential for mitigating the impact of new fossil fuel legislations on GHG emissions in the Egyptian cement industry. This dialogue facilitation and the resulting policy roadmap set the foundations for further emissions reductions in the industry in line with international best practices. Part of a project under the European Bank for Reconstruction and Development, this crucial stakeholder consultation process will enable the Egyptian cement sector to transition towards a low-carbon future.
In addition to wearing the facilitator hat, the private sector is well placed to apply public carbon sector finance mechanisms and develop result-based finance mechanisms when implementing projects on the ground. A great example of this is an approach referred to as insetting, which allows for monitoring, reporting and verifying results across all touch points of a company’s supply chain. The outcome essentially reconnects environmental and community success with economic success — a factor duly noted by Swiss retail and wholesale giant COOP. By teaming up with South Pole Group and WWF, COOP Switzerland was able to offset the emissions of all goods imported by air. This was done by investing in a community-based project that distributes efficient cookstoves to local Maasai villages, among other activities. People from these Maasai villages currently represent the majority of the employees at Oserian Flower Farm, the Kenyan based producer of Fairtrade-certified roses, which exports flowers to COOP Switzerland.
Public decision-makers need to set the wheels of change in motion by unleashing the private sector, which in turn has the ability to catalyse activities to slash emissions and counter the projected unavoidable impacts of climate change. Companies, communities and governments should see the Paris Agreement and the SDGs as an introduction to a new chapter for a world with cleaner energy, healthier societies and smarter finance.