What outcomes do you expect from COP26?
While many countries’ organizations have made commitments, it’s vital that the United Nations Climate Change Conference (COP26) acts as a turning point, where we move quickly from high-level plans to real action. With this in mind, we can expect countries’ organizations to scale up their ambitions to deliver more impact. Critical measures would include supporting the emergence of carbon markets which could accelerate the transition to net-zero greenhouse gas emissions if backed by better accountability and rules around transparent reporting.
It has become clear that the commitments made in Paris weren’t enough. We’re going to have to hit net zero on a much shorter timescale, and that’s going to require greater inclusivity and collaboration. Countries and territories need to support each other to seek to mitigate and adapt to climate change-not only by mobilizing the $100 billion in committed annual funding but also in implementing strategies to protect ecosystems and build resilience.
How prepared are countries to adopt global targets?
According to KPMG’s latest research, which analyzes the progress of 32 countries in reducing greenhouse gas emissions and their ability to achieve net zero by 2050, some countries are lagging in adopting net zero targets and signing them into law.
In many countries, the level of national net zero preparedness is mirrored by their readiness in the five key sectors of electricity and heat, industry, transport, buildings and agriculture, land use and forestry.
Readiness to achieve net zero is linked to economic prosperity and the index shows a clear correlation between the two. This makes it critical that richer countries that have made progress on decarbonization support the others in improving their net zero readiness.
How do we mobilize the capital needed to achieve net zero in emerging and developing economies?
Collaboration between governments, development finance institutions, businesses and non-governmental organizations is key to reducing barriers to mobilizing the capital. The collective aim should be to encourage innovation in financial products and business models to help channel more capital to developing countries. Such efforts need to be backed by policy and regulatory reform to create sustainable financing frameworks in these locations.
KPMG has conceptualized a new net zero equity product which could be capable of raising billions in new capital for very high-risk climate projects from investors for whom social return is more relevant than financial return. The aim is to mobilize capital for the climate agenda where this is not easily available today. The principal focus will be on mobilizing global citizens to participate by subscribing very small amounts of capital but in very large volumes into these green projects in emerging markets.
How can organizations take real action on net zero?
Organizations should have a genuine ambition, vision and commitment to make an impact, and take the following actions:
1. Aim for quick wins. With 75% of global emissions coming from energy, corporate renewable power purchase agreements can help organizations procure renewable energy directly and reduce their emissions while improving the bottom line.
2. Look ahead. Plan for emerging technologies like green hydrogen. These may look expensive now, but it is anticipated that cost parity could be advanced by innovations, rapid scale-up and effective carbon pricing.
3. Look outside at supply chains. Businesses should collaborate with vendors to find solutions that help them move toward net zero.
4. Strengthen capabilities. Organizations need diverse capabilities to help drive behavioral change and internal transition teams to help you stay on course.
5. Reassess your business portfolio. Assess the risk of climate on it and alter strategies, or pivot toward businesses which can help you deliver sustainable value.
How do they embed “green innovation”?
Organizations should seek to embed climate impact at the heart of their strategy rather than as a peripheral consideration. Boards and management should encourage teams and colleagues to experiment with newer technologies and newer processes, encourage innovation and include a research and development budget to address climate risks and opportunities. Teams on the ground need to be assured that even if some of the experiments fail, the top management is willing to back them to innovate and invent.
There’s an opportunity to capitalize on the availability of green funding by tapping sources like sustainability-linked bonds and exploring innovative financing. Corporations that act swiftly may be able to reduce the cost of equity and debt as ESG investing is gaining momentum. The difference in cost of capital for compliant companies or companies with a real action plan versus others should provide a huge competitive advantage and long-term sustainability.