Mike Hayes, Climate Change and Decarbonization Leader, Global Head of Renewable Energy, KPMG International and Russell Smyth, Head of Sustainable Futures, KPMG in Ireland, reflect on the latest developments and why Irish companies should care about COP27.
In the wake of COP27 there has been much discussion on the final deal. Many say the agreement falls short, as the meaningful fossil commitments it aimed for didn’t transpire. Meanwhile others claim that significant progress was made in certain key areas. What remains true for Ireland are the significant opportunities presented for Irish business by the rapidly unfolding climate agenda.
Pressure to drive that agenda forward is increasing inexorably given the stark evidence of climate change that we can see with our own eyes. Much-needed added urgency has been driven by issues such as the drought conditions at home during the summer to terrible weather events in Pakistan and other countries.
The global context
One of the most significant developments this year relates to full disclosure of transition plans. Up until now, companies only had to declare their decarbonisation intentions. Now they will have to produce detailed plans on how they intend to achieve those ambitions.
In the UK, government is making it mandatory for companies to produce transition plans every three years. This means that not only will they have to indicate the specific decarbonisation actions proposed, but they will also have to report on actual progress made every three years.
They will be required to show their stakeholders and the public how well they are doing concerning their own published plans. This will deliver real tangible data on what’s happening in terms of decarbonisation efforts and will highlight the need for increased investment to produce solutions.
That investment is desperately needed as we know we are still a very long way off achieving our net zero ambitions. The technologies simply do not exist to deliver on them, particularly in the hard to abate sectors. In this context, there is also a need to develop carbon capture technologies capable of removing carbon already in the atmosphere.
There is also a much greater focus on greenwashing. A high-level expert group set up by the UN earlier this year is addressing what it terms a “surplus of confusion and deficit of credibility” over net-zero pledges of corporations. In its first report, the group has made it very clear that companies involved in or investing in carbon-intensive activities like coal mining cannot make a net zero pledge.
These developments have significant implications for Irish enterprise.
New reporting obligations
Irish companies are now facing increasing reporting obligations under new regulations like the Corporate Sustainability Reporting Directive (CSRD). The expectations from investors, regulators, companies, consumers, and other stakeholders are requiring greater accountability for ESG data. Irish companies will need to consider the current ESG data challenges and invest in ESG data transformation. By doing so, they will be able to take advantage of opportunities in strategy, supply chains, product development, shareholder value and in helping their customers.
Meanwhile, many large Irish companies will be forced to produce transitions plans regardless of whether they are covered by legislation requiring them. These plans are now becoming recommended best practice by the Glasgow Financial Alliance for Net Zero (GFANZ) group and the International Sustainability Standards Board (ISSB) among others and will soon become a basic requirement for raising capital on the markets.
Decarbonisation and Ireland
Furthermore companies in the supply chain of a corporation with a net zero commitment will come under extraordinary pressure to decarbonise and to demonstrate how it plans to do so. Indeed, Irish companies supplying global companies need to produce their own transition plans if they want to supply global customers due to the Scope 3 problem which makes companies responsible for emissions across their supply chain.
We are going to see the big US tech companies and others exerting influence in a very meaningful way on Irish companies’ decarbonisation plans. This will be analogous to the situation we saw back in the 1990s when Irish companies adopted global standards to break into the supply chains of US multinationals.
Irish firms will need to up their game on climate action and decarbonisation if they are going to continue to do business with those customers. The potential impact on the value of those Irish companies is clear and the decision to take action on climate change is no longer their choice alone. Those companies acting now are the frontrunners in gaining a competitive advantage with their customers and wider stakeholders.
None of this should be viewed in a negative context. The confluence of these various developments and forces is what is creating the opportunities for Irish enterprise.
Opportunities for Irish business
While people might look to governments for progress on climate action, it is the investment markets which are leading the way at present. And the markets are looking to low carbon investments as the future.
Irish companies developing new solutions in areas like energy efficiency and storage, renewables, climate mitigation and carbon capture are going to be at the cusp of a revolution in the financial markets. It will be like the early days of the digital economy and these companies will become magnets for capital. Everything points to more and more demand for solutions in this area. Some businesses will fail because of climate change but many others will thrive.
Ireland’s vast wind energy resources will also come into their own. Demand for renewables and other alternatives to fossil fuels has increased dramatically since the Russian invasion of Ukraine and as Europe weans itself off its dependence on Russian gas, the cost of renewables is falling.
Inevitably, the geopolitical and renewable energy agendas are aligning as governments are getting behind the renewables agenda and, even more importantly, renewables are now exportable. We used to say that there was no point in having so much wind energy in Ireland because it wasn’t exportable - this is no longer the case.
Wind energy has the potential to be converted to green hydrogen and to be transportable. Demand for renewable electricity is growing and demand for renewable hydrogen is going to be phenomenal and Ireland has a central role to play in this area.
Another very significant development for Ireland lies in the area of climate finance. The UN Development Programme (UNDP) is behind the establishment of a new centre of excellence for sustainable finance here in Ireland.
The centre will become an international hub from which the Irish-located finance community will develop its response to sustainability demands. It will lead on research, talent development and other activities to support the design and implementation of innovative financial mechanisms to facilitate the transition to a net zero economy in Ireland and globally.
The question of nature has come to the fore as well this year. Up until now, companies have tended to work on climate projects without considering their effects on nature and biodiversity. In future, corporations are going to have to consider the impact on nature of their carbon reduction initiatives and once again, there is an opportunity for Irish companies to develop solutions in this area.
Finally, urban decarbonisation has been a significant theme this year. Cities and municipal authorities around the world are starting to think about decarbonising. KPMG is leading a global initiative on this. Ireland enjoys the benefit of being small enough to test yet large enough to prove solutions in this area providing yet another area of opportunity.
The momentum behind decarbonisation is picking up with impetus coming from many different sources. So, while COP27 shows us how much still has to be done on fossil commitments and Irish companies will face challenges in meeting new reporting standards and decarbonisation requirements, they will also be presented by a range of opportunities which could see this country become a world leader in climate action solutions.
Get in touch
To find out more about how we can help you business transition for a more sustainable future please contact Mike Hayes or Russell Smyth.
Global Head of Renewables
KPMG in Ireland