How businesses can turn COP26 outcomes into future actions

In this episode of the Sustainability Matters podcast, Steve Varley, Former EY Global Vice Chair of Sustainability, discusses the impact, outcomes and importance of actioning key COP26 takeaways.

Key takeaways include:

The target of 1.5oC is still viable, but once nationally determined contributions (NDCs) have been considered, that number could change.
A greater corporate presence at COP26 could indicate a greater corporate influence on turning ambitions into actions.
A collaboration between nations, governments and business is seen as paramount to achieving the 1.5oC goal.
Government regulations and stakeholder demands could have significant impact on future business operating models and the ability to access capital markets.
Providing further education on the language of climate change could help to enhance the conversation, and inspire ideas and innovations that can make change possible.

For your convenience, full text transcript of this podcast is also available.

Chris Hagler

Hello, and welcome to EY Sustainability Matters podcast with me, Chris Hagler, Managing Director with EY's Climate Change and Sustainability Services [Ernst & Young U.S. LLP]. This podcast was designed to address critical and practical issues related to ESG, or environmental, social and governance issues. For this episode, I'm joined by Steve Varley, EY's Global Vice Chair of Sustainability, to talk about an event that's been front of mind for the whole world, not just us directly involved in climate change and sustainability. I am, of course, talking about COP26 summit.
While the summit is designed to spur actions to reduce emissions globally and ultimately reach that target of keeping the global temperature increase under 1.5 oC, we all recognize there is still a great deal of work to be done. EY [the EY organization] is committed to reducing its own emissions, while helping clients address climate change and drive sustainable growth. This is a position strengthened by the recent announcement that EY achieved its 2021 carbon-negative aim and has ambitions to be net zero by 2025. We'll discuss this, as well as the role finance will take, and how essential policies and the framework for nonfinancial reporting will be critical to achieving global emissions reductions and finding value within ESG.
Thank you for joining me, Steve.

Steve Varley

Hi Chris, thanks very much for the opportunity to engage on COP26, and thanks for inviting me to be part of the podcast, I'm really looking forward to it.

Hagler

I'm glad you're here. Before we get into the details of COP26, you were there in Glasgow to experience the whole thing. I'm sure it gave you a great chance to get a sense of the feelings surrounding the event, so before we really get in, let me ask you this, what were you expecting or hoping before the summit started? And how did that turn out?

Varley

So, maybe, I can wind everybody back to a few months ago, where there was a report that basically said the planet was going to warm up too much, and the headline was "code red for humanity." And it was into that backdrop that I arrived into Glasgow, late on the Sunday afternoon, before what's called World Leader's Summit Day One of COP26 took place. I guess, I was an optimist at that point, Chris. But you know me, I kind of say I'm an optimist, but an optimist that worries a lot. But as I went to the blue zone on the morning, I was probably a little less optimistic than I normally am.
This was not just a much-anticipated COP, it was the five-year cycle after the Paris Agreement, so this is a big COP with countries submitting their new NDCs [nationally determined contributions], which specify how much GhG [greenhouse gas emissions] reduction they would commit to. But it does also take in place in a backdrop of a global pandemic, where for many countries, the COVID-19 pandemic is receding for them. Out of the 190+ countries assembling in Glasgow, on a cold November morning, for many, COVID-19 is still a near and clear, and present danger to health and economy. So, what we had going into COP26 were several reasons, maybe, not to be as optimistic as I would like to be.

Hagler

Steve, that's fascinating. And so, you went in with an optimistic view, a little bit of concern with the red flag. In the end, did you have reason for continued optimism? Were there some good things that came out of it?

Varley

So, let me give you two levels of answer. One is, and I think other people have used this language, we leave COP26 after an ambition of keeping 1.5oC alive, and 1.5oC has a pulse. And, whilst I've seen several different numbers being applied by the client’s climate scientists, once every single country's NDC has been taken into account, I see numbers ranging from 1.7oC, 1.9oC to 2.4oC, and I'm still waiting for that to settle down. So, you could say, on one level, unfortunately, we didn't meet our target, which was a stretch target from Paris for sure, of getting to 1.5oC or even better, but we kept 1.5oC alive, Chris. And I'm optimistic about that. But then the other level, COP26 had four official objectives and let me just hit what each of those in turn.
The first one was to keep 1.5oC alive, as already discussed. It's there, but the pulse is weak. The second was a greater focus on adaptation, and I would reflect that in the Western world, in the two countries where we're connecting from, the UK, and to you in the US. Chris, our language is somewhat more about mitigation. It is the language of keeping 1.5oC alive, it's language of offsets, and removals and breakthrough technology. Especially in, as the UN puts it, the Global South, the language and the need is far more about adaptation because climate change is here today.
Catastrophic climate change is here today — if you're a small island state, if you're a less-developed country, an LDC, as the UN would put it, if, maybe, a part of an indigenous tribe — well then, today you have economic, and health and lifestyle impact from the climate change. So, the second objective was for more focus and adaptation. I think that in the broad was met. But it then leads me to the third objective of COP26, which was to confirm the availability of US$100b per annum of funding from more developed countries to less developed countries. And on that, Chris, whilst there's been good efforts, we [the UK] have fallen short. We committed in Paris as co-signatories, alongside 190 other countries, for there to be US$100b per annum available, beginning 2020.
Now, we think we're at, and again I haven't seen the official numbers, but we think we're at between US$80b and US$90b being available. But, I want to be clear with everybody that many countries would say they signed the Paris Agreement on the understanding that the developed world would make the US$100b per annum available 2020, and it's not there. And the latest stats I saw, said it may be as late as 2023. So, for some countries, the issue is the lack of financing available. But actually I think for more, Chris, this is about trust. A commitment was made in Paris that led to the overall signing of the package and it's not been met.
The fourth objective of COP26 was for us all to work together to deliver the first three. Now, in general, I think the mood in Glasgow from the negotiators was one of great collaboration. And if I look at some of the movements that have been made, so a major commitment to reduce methane or methane, I guess you could say, depending on where you come from, a great coalition to reduce the impact on rainforests being degraded and to preserve and resurrect rainforests that was signed by multiple countries; further efforts to reduce coal; and the joint China and the US declaration of intent on climate change impact reduction. Wow, that was amazing. But also, against that, Chris, I think we need to recognize that very late in the process, the text was weakened on one particular point, and I'm sure you'll know what I'm coming to, of coal, where the package that was agreed had text, "The coal would be phased out." And that was changed with a late intervention by not just one country, but by several that changed the language to, "phased down," which actually does make a lot of difference.
So that fourth objective, I thought, was great collaboration, majority of the time. But for some, including Alok Sharma, as COP26 President, there was emotion in his voice when he asked the group still to sign off what he called the overall package, even though there'd been a late, late change on the words on coal.
So those have been my reflections. I left more optimistic, Chris, because I think it always seems to be less stressful to be an optimist, with several worries in place, but maybe I'll finish on one last point. So, we will all return for COP27 that'll be hosted by Egypt, and all the countries have agreed that COP27 will be different than expected, it will be a bigger COP and a more impactful COP. Not as big as Glasgow, because that was a five-year COP, but typically, the interim COPs are merely markers. But, we've all said, this will be a measurement COP as well, potentially with improved, nationally determined contributions. John Kerry, as the [US] President’s special climate envoy, set an expectation that each country will return this time to Egypt in November 2022 with even more ambition, and share with each party in the confederation of parties, their performance and progress towards their reductions. I think that will be big, Chris. And I'm really pleased that COP27 is going to include that measurement and accountability phase.

Hagler

You know, you brought up trust, and I think that that is a major issue, not just in the countries, but also in working with companies. So, I'm going to come back to that in a minute, but let's switch just a little bit, Steve. COP26 is primarily focused on countries, so how do you see the role of corporates in reducing climate change? And how are they doing, do you have optimism in that area as well?

Varley

Yes, I do. There is probably something more to say on this private sector business dynamic. At a COP, typically, business is present, but not at scale, and with limited influence. This time around, especially at this COP, financial services, over and above anything, the private sector turned up. And whilst financial services can be said to have turned up, actually so did several other sectors. Because I think we all feel, if I speak broadly, of an opportunity to do even more on this agenda. So private sector was present in Glasgow, I think it presented itself with the correct respect and humility — respect and humility for 20,000 plus negotiators in the blue zone — trying to create a multilateral agreement, which is incredibly complex. But also, the private sector arrived with innovation, with solutions, with a positive mindset to be constructive. I was actually really pleased with the way that business leaned into Glasgow and leaned into the problem.
Now, I think there's a lot more for business to do, a lot more than we can and should, and frankly, must do. And, maybe, in COP27, in Egypt, we should expect even more from business. And I know, some, and I'm a big fan of this idea Chris, could see even that there's a not just a COP, but there's a COB, where the “P” of party becomes a “B” of business. And I think business could help fill the gap, if once again, the countries’ NDCs fall short of keeping 1.5oC alive. Because this is, as they say, the “Decade of Action,” capital “D”, capital “A.” And if we get to the back-end of 2022, with still a gap from the countries to keep 1.5oC alive, if we get there, where the climate scientists tell us that despite the countries best efforts, we're still going to warm the planet up by, say, more than 2oC above pre-industrial levels. Well then, I think we should request companies, especially the major companies, to submit their own corporate development contributions, their own corporate reductions, so that we in business can help the planet cool down, to help it reduce the warming even more quickly. To help us keep 1.5oC alive. I think business could play a big role in that, Chris.

Hagler

Well, and I think business is, Steve. So many of our [EY] clients are setting net-zero goals, science-based targets, working to reduce their own carbon footprint. It seems to me, though, that companies, the private sector needs to work with the governments to collaborate, to really achieve these major climate-related goals. And, what would you say are some of the biggest hurdles that these organizations face, and you know, Steve, do you think trust is one of them?

Varley

Yeah, I do think trust is one of them. Trust comes from many things, doesn't it? Transparency, doing what you said you would do, when you said you would do it, alignment of objectives, and if not alignment, then at least understanding where objectives aren't aligned, and understanding the consequences. And I think in broad, in many areas, we are all still working on this together. That's not just business and government, but government to government as well.
I'm sure, far more learned than me, would comment on the trust exists at this moment in time between the major powers of the world, the G20. And if you bear in mind, 85% or so of emissions come from the G201, there will be some at COP, which brings together 190 countries, which say, “if you lot in the G20 sorted it out, you could do it quickly if you wanted to.” And I'm sure everyone remembers that just before COP26 in Glasgow, there was a G20 in Rome, Italy. And some would say that just not enough was said post that G20 about climate and about commitments to greenhouse gas reductions.
Also, just on business, Chris, I think we would say at EY, that the link between government and business is really, really important, to make sure that there is a just transition. There's a transition that is economically inclusive of all in society— that we don't leave jobs behind, we don't leave people behind, we don't leave economies behind. I think we all know how to make the shift to a lower-carbon world. What I think we need to apply ourselves, though, is how do we make that shift in a just transition way, which preserves the jobs that must be preserved? So, a transitioned employment from old economy, sometimes an old fossil-fueled economy, to the new green and renewables economy — how do we do that for today’s workers and tomorrow’s workers? I think that requires a lot more work, and a new grand collaboration between government, business and NGOs [non-governmental organizations] as well.

Hagler

Well and I think even, Steve, understanding of how the environment, and dealing with the environment also has very major social impacts. And as our [EY] clients work on ESG – environmental, social and governance – sometimes they end up looking in a silo, as opposed to across all three, and how those topics interact in order to solve problems in a more holistic perspective. You know, you also brought up transparency. What do you see the role of transparency playing for both countries and companies?

Varley

I think there's a lot more to go for both countries and companies. So for the 192 countries, I think, that are involved in COP26, just over 40 did not submit new nationally determined contributions2, new NDCs. Now, every country at the Paris Agreement signed off to five years later, at COP26, submitting new and improved NDCs. Amazingly, just over 40 countries ignored that. Now, some ignored for good reasons, still swamped by pandemic, conflict in their own countries. So, I think, some, we can be very understanding of, but not all. And then the NDCs, there is still work to be done on making sure there's just a single measurement framework, because the NDC format is open to interpretation by the country, so the metrics that are used are not uniformly used.
Countries use different metrics, and if you thought that was a challenge for countries, as you and I know, Chris, for companies, there's even more options on reporting. But there's good news on this, one of the smaller bits of good news that maybe passed some people over, was the announcement of the creation of the ISSB, International Sustainability Standards Board, and we all have high hopes and expectations that the ISSB will fast-track homogeneous, consistent reporting standards, that will be widely adopted, that will have the right level of third-party assurance to give confidence to users. And I think that was a big announcement, Chris, at COP26, and one that was well overdue.

Hagler

Yes, I think that will be a huge value to so many of the corporates who are currently struggling with so many different reporting frameworks and guidance that are out there. So, to your point about keeping things on a level playing field, consistent reporting and consistent transparency is certainly something that will be helpful. And just for our listeners, NDCs, by the way, are nationally determined contributions, which is basically what is a company or a country’s fair share of greenhouse gases, and how are they contributing to reducing those. Very much the same process that our [EY] clients think about when they're setting a science-based target, thinking about what is their fair share, and how much should they reduce.
Steve, I wanted to ask you about the organizations that aren't addressing ESG yet, or don't see climate change as a priority for them. You know, as we've said, we need both countries and companies to together, in order to achieve 1.5oC. How do we influence some of these organizations that aren't yet addressing this, to put this closer to the top of their list?

Varley

It's a great question, Chris. I guess, for some companies, this is, and will be taken out of their hands, because governments will regulate, and actually they'll also find their investors demanding change and focus on this area. But, I also like to think there's a more positive story, that for many organizations that we help, they are looking to innovate, create new products and solutions, and services for customers. They're looking for customers that maybe they've never served before, that they can now access because they've got a sustainability offering. Where they're heading is to embed into their strategy, into their business model, products and services, and internal operations that are respectful of the climate, and reduce greenhouse gases, and reduce the warming. So, for some, I think they'll be forced into this by external forces. I think the smarter ones, the leading companies will lean in, will look to see how they can adapt their business model, especially to find new customers they've not accessed before. And from a position of driving value for stakeholders, including value for their shareholders, but really value for stakeholders, they'll begin to understand that they can both help the planet be more sustainable, whilst also growing in their business and growing their value to stakeholders. And I think that driving capitalism as a positive force for sustainability Chris, is going to be one of the opportunities we all have to stop the planet warming up too much.

Hagler

Absolutely. And continuing to help companies really understand how to measure that value, which isn't always as easy as measuring direct financial value but understanding the other types of value certainly is an opportunity going forward.
So Steve, with COP26 fresh in your mind, thinking now about COP27 in Egypt, where does EY go from here? Where do you see our [EY] clients focusing?

Varley

So I think there's a world of opportunity now for COP27. In a way, let me be bold enough to start off with a request to the UN [United Nations], and the UNFCCC [United Nations Framework Convention on Climate Change] who run the process alongside a host country. Because going back to our early conversation point, Chris, I think business has more to offer and more to contribute. I will also say, the more we often contribute and get included in a COP process, the more you can hold us to account. But I would love to see as a starting point at COP27, a new place for business to help and then be held to account on our delivery. So that's my starting point Chris, and then I would add to that really quickly. I hope that every single country comes back to Egypt, comes back to COP with an improved NDC, an improved reduction to their greenhouse gas position. That that ratchet up gets us to keep 1.5oC alive. And then, let's not forget this other point, on an even greater focus on adaptation and funding there to support less developed countries survive and to combat the impact of climate change that they're experiencing today. And that brings us back to the hundred billion [US$100b]. So, that'd be my package Chris, if I could be so bold and so demanding, and that would be my package of requests.

Hagler

Well we might as well ask, Steve, no reason to ask for less than what we think would be the best solution, so I'm supportive of that.
So, one last question before we head out, I always like to leave our listeners with something practical. So knowing that we have primarily a corporate audience listening, what practical ideas do you have for our [EY] clients as they shift from learnings from COP26 to what a year from now, and perhaps, even thinking more about 2030 or 2050, maybe one or two practical actions our [EY] clients can and should be taking right now?

Varley

Good, and that's a great way to end this, isn't it Chris? These practical actions, I think that's what we're all searching for. Well at one level, we've created under my name a LinkedIn post, which has got five actions for business as a consequence of COP26, so, maybe, if people could look at that. But let me bring a couple of those to life for people. So the first one I would say, Chris, is education in this area. Sometimes the language is a bit obscure, as you've pointed out, where it's got lots of acronyms, three letter acronyms, but also four and five letter acronyms as well. So, the starting point I think is to make sure that people are educated, and there's some great videos, some great online learning. And also, some good articles on ey.com for people to look at, so they become fluent and conversant in the language of climate change.
Then the second thing I would advocate is simply bringing your employees together to talk to them about climate and listen to them. Listen to them on their ideas for making your organization more climate impact-aware, and also putting in place some simple improvement programs. And Chris, that can be as simple as looking to significantly reduce your energy usage.
And then lastly, and maybe, I can say, most importantly, is begin the dialog with your consumers, or your customers or your clients and their needs — their emerging needs. What else do they need on climate change from you? What I've found in talking to our [EY] clients, it's a wonderful way to be educated, and as we know for us at EY, we're a client-focused organization. So, we have a lot of processes that we deploy to listen carefully to clients. And then we respond and react, hopefully in a quick and agile manner.
So those would be my three parts, Chris, and then ending up with this idea of engagement: engage with your consumers, your customers and your clients, and make sure you use meeting their needs to drive positive change in your company.

Hagler

I think that's a perfect way to end it, Steve. Thank you so much for joining me today.
I'd like to end this episode with just three words that, I think, many will take away from COP26: commitment, opportunity and optimism. The commitment of more and more nations agreeing to work hard to reach that ultimate goal of net zero by 2050, the opportunity to take meaningful action and the optimism of what could be when you combine commitment with opportunity. And maybe I'll say, when you commit country actions with corporate actions, to get things done.
If you enjoyed this episode and would like to hear the next one, or some of our past ones, I hope you will subscribe to the Sustainability Matters podcast, wherever you get your podcasts from. Sounds like it would be a good idea to follow Steve on LinkedIn, or me on Twitter or LinkedIn, @ChrisHagler. And certainly, EY has a tremendous amount of useful information that we keep on our website and hope you will take a look at that. Thank you so much for listening and goodbye.

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Ernst & Young Global Ltd.

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Season 4, Episode 2

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28m 28s

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How businesses can turn COP26 outcomes into future actions

Key takeaways include:

Chris Hagler

Steve Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Varley

Hagler

Presenters

EY Global

In this series

Presenters