Why the COP26 is Crucial for Businesses

All eyes will be on Scotland between 31 October to 23 November 2021, as they host the 26th United Nations Climate Change Conference of Parties (COP26). The COP26 summit aims to bring parties together to hopefully accelerate action towards the Paris Agreement objectives and the United Nations Framework Convention on Climate Change. TCOP summit is not only an open forum between nations and global leaders – but large businesses also attend, including a selected few international conglomerates, financiers, and investors. It is well recognised that their presence is crucial due to the part businesses and other significant organisations play in shaping the green economy.

The upcoming COP26 global summit is being seen as an important event for agreeing on the many needed changes to fight climate change. It is the first summit since the 2020 deadline for various elements of the landmark Paris Agreement – which was adopted by 196 countries and territories at COP21 in 2015. It is also a principal focus for China and the United States, which are together accountable for more than 40% of the world’s carbon emissions.

There is substantial political momentum from most nations when it comes to wanting real and lasting change. This includes the joint statement made by the United States and China in April 2021, which pledged together they will cut their carbon emissions by 50-52% below 2005 levels by 2030. The United Kingdom has been targeted with reducing emissions by 78% by 2035.

The current analysis is showing the world nations are not yet doing enough to combat climate change. The planet is on track to warm between three and four degrees Celsius 2100 – this could have some disastrous outcomes. The sea levels will rise, and sizable areas of Earth will become uninhabitable. What happens at COP26 will have a direct impact on the world and our lives. It is clear the importance of COP26, but how does it affect businesses, and why should a company pay attention to what is happening at the conference.

COP26 Will Impact Consumer Behaviour and Business Revenues

People are becoming increasingly aware of the climate crisis, and it is influencing consumer behaviour. As a result, consumers expect businesses to consider sustainability and are willing to pay a premium for services and products that actively care about the environment. The EY Future Consumer Index focused on consumers beyond COVID-19 – reporting that 64% of consumers will pay more attention to the environment, 59% will shop local, and 40% will pay more for sustainable products.

Sustainable consumption is a trend that does not look to be slowing down, and businesses have an opportunity to create value and boost revenue by responding to consumer environmental expectations. For example, some companies have started differentiating themselves by applying carbon footprint labels to share the environmental impact of their products to consumers. The trend of environmentally conscious brands is likely to be accelerated post COP26.

Create New Business Models and Innovation

New business opportunities will be created through the advancing technology, falling cost of capital for green investments, improved regulation for high-emission assets, and increasing price of carbon emissions. In addition, the improved environmental practices may involve the creation of new business models and entirely new products and services. For example, some companies are now looking into alternative building materials that use recycled materials like glass, plastic, and paper.

The rise in carbon pricing significantly impacts opportunities for businesses looking to develop products and solutions that generate carbon credits. Green businesses such as seaweed farming that captures and sequesters carbon or filters that directly remove carbon dioxide from the atmosphere will likely thrive post COP26. All business types can get valuable insights into what they can do to become more sustainable and discover potential innovation opportunities by engaging with what is happening at COP26.

Sustainable Businesses Attract and Retain Dynamic Talent

It is not just consumer behaviour that is being impacted by an environmental awakening – people’s job choices are also being affected. Research conducted in 2019 found that 73% of workers wanted their employer to improve its sustainability record. It was even recorded that 24% of those surveyed would turn down a job opportunity at a company with a poor sustainability record.

For businesses that seek to attract a young workforce, the younger generation tends to be especially alarmed by the climate crisis. For instance, Gallup research found that 70% of Americans aged 18 to 34 are concerned about global warming – compared with 56% aged 55 and older.

It is vital that companies do not just claim to be green – they need to show how they are sustainable and what measures they have in place to improve further. Engaging around COP26 indicates that the business recognises the impact of climate change and wishes to be part of the solution.

Boost In Green Investments

Green assets are already incredibly desirable for investors as they are expected to deliver some lucrative long term returns. For example, renewable energy companies have been experiencing massive interest in solar energy stocks. Nonetheless, COP26 is expected to boost the green finance market further – especially as one of the summit’s primary goals is to support private finance to establish a whole-economy transition to net zero.

The investments will progressively flow in the direction of companies and countries which are considered green – placing extractive and polluting business models at heightened risk. This will coincide with a closer focus on “greenwashing”, which will drive standardisation, provide clarity around what is classed as a “green project” or “green finance”.

In addition, greater caution will reduce opportunities for regulatory arbitrage, blocking companies from transferring assets to countries that do not make the environment a priority. For example, the European Union is considering a carbon border tax to reduce unintended consequences of its emissions trading system.

The Bloomberg New Energy Foundation estimates that between $78tn and $130tn of new investment will be required by 2050, in areas such as power generation and hydrogen production, to facilitate the environmental targets set by governments around the world. Therefore, businesses should look out for green financing arrangements (both positive and negative) that are expected to come out of COP26. They should also keep a close watch for any specific to their areas that may affect their business – such as clean air policies or environmental habitat protection.

The Takeaway

With the daily pressures of being in business, especially with the added challenges caused by the pandemic, many companies may not take much notice of COP26. However, this is one of the main reasons why those who take the time to follow this year’s climate change conference will be at a competitive advantage – they will be more aware of the emerging environmental trends, which mean so much to consumers and staff.

Climate change is now realised to be one of the most significant business risks and leading commercial opportunities of all time. The businesses which are wanting to manage this risk and take advantage of this opportunity to protect and create value from sustainability for their company should pay close attention to COP26.