Business should pay close attention to the COP26 talks or face being blocked from the table, argues Sara Walton

Without climate innovation, business risks being left behind. Climate risk is now not just about the impacts a business will experience from climate change, but also about the risks that not transitioning to net zero will have on reputation and market value.

Much is shifting in the business world and the 26th Conference of the Parties (COP26) meeting next month will only add more change. While much of COP26 seems to be policy-focused, there are multiple reasons business should pay attention.

This is the third in a three-part series on COP26 from the University of Otago
* Part one: What our climate policy is overlooking
* Part two: Climate-smart food systems should be centre stage at COP26

The COP26 will focus on the Paris Agreement (an aim to decrease emissions to net zero by mid-century and keep temperature rise at between 1.5-2 degrees), as well as the United Nations Framework Convention on Climate Change, to bring about change to meet the goals of both of these agreements.

To meet the carbon budgets calculated for Earth, radical systemic change is needed. That means change is needed to the very structures upon which society rests. Hence, COP26 is a crucial event for the planet. Politically, we can no longer afford to be “blah blah”, we need action.

From a business perspective, the situation is changing rapidly. Investor alliances are asking for companies to adhere to science-based targeted emission reductions and lawsuits are being filed against companies that fail to reduce emissions.

COP26 will set the scene for more climate change regulation at both an international and national level. Policy signals and future regulations help create certainty for business, so understanding the directions will be helpful. For example, the Green Deal outlined by the EU is designed to be world-leading and has implications for any other country entering into a trade agreement with EU member states. Greenwashing by companies will be identified and companies will be fined.

It is also important to pay attention in order to understand the financial investment in climate change mitigation and adaptation. If the financial pledges are honoured, then there will be a mobilisation of climate finance of at least $100 billion every year to help support developing countries.

Unleashing private finance is also being discussed and private companies are being encouraged to disclose the risks and opportunities for the transition to low carbon for their business. In New Zealand, the banking and finance sector is being strongly encouraged to ensure that their practices align with the low-carbon transition.

Paying attention to COP26 will give business a sense of the transitions that will happen as a result of the talks. As well as policy and financial shifts to low carbon, it is likely that consumer behaviour will change and be more demanding for low-carbon options. It is then highly likely that business models will change to be able to create, capture and deliver sustainable and low-carbon value to customers, and society.

The net zero transition needs to happen quickly and, so far, we have been very slow to change. Other significant socio-technical transitions provide evidence that once a regime shift starts, we can expect to see more rapid changes as the transition gains momentum.

As technologies become more economically viable and make commercial sense, and as policies align and markets shift, there will be greater systemic alignment, and change will occur rapidly. If Aotearoa New Zealand wants to remain competitive, our businesses need to be prepared for this net zero emission transition. Measuring a carbon footprint is the best way to start. This creates a base year from which to improve.

After measuring emissions, many companies are moving into developing science-based emission reduction targets to align their emission reduction strategies with the carbon budgets of both New Zealand and the world. Science-based targets are based on the Inter-Governmental Panel on Climate Change (IPCC) reports which project pathways to stay at least within 2 degrees of climate warming. These carbon budgets define the amount of carbon that can be emitted for different temperature ceilings.

Companies are calculating the proportional amount of GHG emissions they can emit to be part of the movement to carbon zero, then they can be confident of doing ‘their fair share’ towards the transition. For many companies, this means significant reductions in GHG emissions which will involve innovation in organisational processes and business models.

By having science-based targets and an understanding of the context of the carbon emissions, organisations can then calculate when the right time is to innovate for both the climate and their business.

Having the information, being proactive and creating an advantage is going to be essential for this low-carbon transition. The alternative of being reactionary and uninformed, and therefore facing fines and being blocked from ‘the table’, is a far too risky option to be facing.

Sara Walton is an Associate Professor in the Department of Management, Director of the Master of Sustainable Business and Co-Director of He Kaupapa Hononga Otago' Climate Research Network at the University...

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