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In the fifth edition of Insights+, the Climate Change team dives into the biggest topics at COP28: fossil fuel phase-out and the just transition, accountability for business commitments, the role of nature in achieving climate goals, and climate justice. Explore key recommendations for business leaders on how they can take action on these topics and what might be around the corner.
What Business Leaders Need to Know
COP28: The Starting Block for National Climate Pledges in 2025
The Paris Agreement mandates that all countries must revise their national climate pledges every five years, with the next update scheduled for COP30 in Brazil in 2025. Two years before this event, the global community assesses progress toward holding warming to 1.5°C above pre-industrial levels with a global stocktake. The results of the first-ever global stocktake will be discussed at COP28 in Dubai, raising the curtain for countries to begin developing their next climate pledges.
Based on the data collected so far, the stocktake gives us reasons for both optimism and pessimism. It concludes that the Paris Agreement has “driven near-universal climate action…significantly [reducing] forecasts of future warming.” The likelihood of a climate catastrophe (warming over 4 degrees) has slightly decreased, but it cannot be ruled out.
Business leaders will be expected to have a point of view on the global stocktake and should assess the implications—especially those in high-emissions industries. They can anticipate an update on their emissions reduction targets, intensify energy efficiency, and accelerate their delivery against these targets.
The latest Emissions Gap Report 2023 shows that global emissions reached an all-time high in 2022. Current policies project a slight reduction of 3 percent through to 2030. The 1.5°C pathway would require a 42 percent reduction this decade, which equals to a reduction of 8.5 percent in emissions year-on-year, every year, for the rest of the decade. By comparison, the impacts of COVID-19 on the economy reduced year-on-year emissions in 2020 by 4.5 percent. Even if 1.5°C is no longer viable, mitigation efforts are still crucial, and businesses can double down on efforts to limit global warming through investments and real emissions reductions.
This tension between optimism and pessimism will be on full display at COP28. Will it be the moment governments agree to act decisively and urgently toward a 1.5°C pathway? How will the global stocktake define future pledges and 2035 targets? Will G20 countries, which account for over 80 percent of global carbon emissions, agree to announce 1.5°C-consistent, economy-wide absolute reduction targets for 2035? Will it become clear how these nations plan to address climate justice issues, such as increased commitment to a Loss and Damage fund? Can COP28 be a bright spot of cooperation between the two largest emitters, China and the US, and further support global ambition?
COP negotiations will extend far beyond governments. These decisions hold significant ramifications for business leaders, who are expected to actively engage in discussions, scale up ambition, and spearhead solutions, alongside other critical stakeholders.
As the world faces the hottest year ever recorded, COP28 demands leadership, equitable climate action, and sustainable transformation across all sectors.
Fossil Fuel Phase-Out, Accountability, Nature-Based Solutions and Climate Justice Take Center Stage
The global stocktake will set the scene for COP28, but it’s not the sole focus. The conference’s major themes include fossil fuel phase-out and the just transition; accountability for non-state actor commitments, including business commitments; the role of nature in achieving climate goals; and climate justice.
COP28 takes place in the United Arab Emirates (UAE), a nation ranked among the top 10 exporters of fossil fuels globally. Sultan Ahmed Al Jaber, CEO of the state-owned Abu Dhabi National Oil Company, is the COP28 President. So, it is no surprise that calls for a fossil fuel phase-out will be top of the agenda.
COP27 in Egypt saw India proposing a global commitment to phase down all fossil fuels, which was supported by more than 80 countries. Ultimately, the conference failed to reach a consensus on fossil fuel phase-out. In March 2023, the European Union declared its commitment to a global phase-out of unabated fossil fuels—which would allow countries to keep burning fossil fuels if they use technology to “abate” or capture the resulting emissions. And in September, G20 leaders agreed to triple global renewable energy capacity and accelerate the phasedown of unabated coal power.
It seems clear that a subset of countries will press for the phase-out of unabated fossil fuels in the COP28 outcome and that the climate community will scrutinize any resulting language in assessing the credibility of COP28. Over 130 companies have recently shown their support by signing an open letter that urges national governments to ramp up clean energy and phase out fossil fuels.
Aside from the official United Nations (UN) outcome, Al Jaber, in his role as COP28 President, is recruiting energy companies and other heavy-emitting businesses to a new Global Decarbonization Alliance. This initiative has sparked criticism of his dual role and how he is likely to preside over these important talks. The commitments made by this Alliance, particularly its impact on diminishing fossil fuel usage rather than merely decarbonizing the production process, will undergo scrutiny.
At COP28, we will see a renewed focus on holding non-state actors accountable for their net-zero commitments. Last year, the UN issued 10 recommendations for net-zero commitments for businesses, financial institutions, cities, and regions. Since then, the UN Secretary-General team has promoted these recommendations as the standard practice. Companies speaking at the UN Climate Ambition Summit had their climate transition plans assessed against these recommendations. The UN is urging voluntary initiatives, such as The Race to Zero campaign, to align with these recommendations.
The United Nations Framework Convention on Climate Change (UNFCCC) released a Recognition and Accountability Framework in June, which established a “Global Climate Action Portal” as the UN’s access point for all voluntary climate action commitments for business. This major global platform provides an opportunity for companies to publish best practices on voluntary climate accountability. Plus, the UAE Presidency and UNFCCC are currently working on the Net-Zero Transition Charter for private sector accountability.
Businesses also will see nature move up the sustainability agenda at COP28. From 2015 to 2017, the Paris Agreement, Science Based Targets Initiative (SBTi), and Task Force on Climate-related Financial Disclosures (TCFD) recommendations established respectively the global climate goal, a methodology for corporate commitments toward that goal, and a framework for climate risk management and reporting. In the past year, the Global Biodiversity Framework, Science Based Targets Network (SBTN), and Task Force on Nature-related Financial Disclosures (TNFD) recommendations have provided the same for nature—a set of global goals, methodologies for corporate commitments on land and freshwater, and a framework for nature risk management and reporting. This has established a new standard for business and highlighted a growing need for companies to tackle nature-related topics and increase their action and investments.
Nature and climate stand or fall together—forecasts show that at least 30 percent of climate mitigation potential between now and 2030 resides with nature. Forests deliver one-third of the emissions reduction needed by 2030, underpinning over 44 trillion of global GDP and the resilience of all humanity. The most recent edition of the Intergovernmental Panel on Climate Change (IPCC) report found that virtually any action to preserve or restore nature also has positive benefits on the climate. While many companies have science-based targets and well-developed action plans on climate, few are similarly mature on nature and biodiversity. Set against the Global Biodiversity Framework, COP28 offers a path where climate and nature action unite. COP30 in Brazil, home to most of the Amazon rainforest, will further amplify the focus on advancing nature-positive solutions.
Finally, as the global stocktake recognizes, “a focus on inclusion and equity can increase ambition in climate action and support.” Put simply, to effectively tackle climate change, we need to promote and ensure climate justice.
People-centered climate action is essential to achieving an accelerated and sustainable transition to a net-zero economy. The debate centers around just transition for workers and communities in the shift of key sectors.
COP27 put just transition (especially for the Energy sector) firmly on the agenda, as seen with the implementation of Just Energy Transition Partnerships (JTEPs). At COP28, a key discussion involves implementing just transition mechanisms and broadening the conversation to include other sectors.
Climate justice also means mitigating and adapting to climate impacts, which disproportionately and unjustly affect marginalized groups. Businesses, governments, and NGOs need to collaborate actively to ensure that the most vulnerable communities—those disproportionately affected by climate change despite not historically contributing to it—receive protection from future crises.
At COP27, countries agreed to set up a Loss and Damage fund for vulnerable nations as a key instrument of climate justice. Discussions on its implementation are not finalized yet and have revived tensions between countries on the road to COP28.
What Does This Mean for Business?
COP28 comes at a critical time for business action on sustainability. An early look at the findings of the Global Stocktake indicate that the global community is not on track to achieve the goals set out in the Paris Agreement.
BSR’s Climate team has identified a series of actions on the following themes for Chief Sustainability Officers (CSOs) and sustainability leads in the lead-up to and aftermath of this pivotal global convening.
The Global Stocktake:
- Strike the right balance between optimism and pessimism. Too often, the climate stocktake is an opportunity for deep despair among the climate community. The window to 1.5°C might even be closed, but closing the gap requires innovation at scale, which is the hallmark of business, and every tenth of a degree counts. Companies will be expected to have a point of view on the global stocktake, especially those in high-emissions industries.
- Make announcements in dollars and tonnes, not percentages and target years. Tangible action is seen through investments and real emissions reductions—even if they mark just a few steps along the path to net-zero goals, representing significant progress rather than mere greenwashing. And this year, the global community is focused on progress.
- Defend 1.5°C-consistent climate action. No one, neither the UAE Presidency nor its greatest critics, wants Dubai to be the place where the 1.5°C goal is laid to rest. On the hottest days this year, the global average temperature touched 1.5°C above pre-industrial levels—and we personally got a taste of what that would be like. Just imagine if that was the average day.
- Transform at scale. We have seen progress toward climate goals, but the pace and scale of current progress is falling short—and too often we continue to look at climate in isolation from nature and people. Companies increasingly face a tension between their economic objectives and their sustainability ones. It’s time to innovate and explore new strategies and business models to address the tensions between business and earth system boundaries.
Accountability of Net-Zero Commitments:
- Review the Integrity Matters recommendations, a report from the UN on net-zero emissions commitments of non-state entities. We recommend any effort to harmonize climate commitments and concrete plans. The reports may also point the way to futureproofing your company against greenwashing claims.
- Report and act on evolving nature-related impacts, risks and opportunities. Consider how your future Taskforce on Nature-related Financial Disclosures (TNFD) can be integrated into the Climate-Related Financial Disclosures (TCFD). The TNFD recommendations align with the 11 TCFD recommendations and introduce three additional ones. If you have already implemented the TCFD recommendations, you may not realize that you are already halfway to TNFD implementation.
- Get ready for science-based targets on nature (SBTNs). If you had known in 2015 that in 2023, thousands of companies would adopt science-based targets for climate, would you have made any different decisions back then? How would you have prepared for the future? That’s the question you must answer now on SBTNs. BSR supports its members with Nature assessments and Prioritization in line with the SBTNs.
Climate Justice and the Just Transition:
- Take action, drive ambition, pursue advocacy, and maintain accountability in just transition efforts. This includes understanding and addressing social implications, stakeholder engagement and social dialogue as a vehicle for decision-making, planning for the future workforce, ensuring human rights are respected, and the importance of leading by example and advocating for policies that enable a just transition. Consult the Just Transition Resource Platform for active steps and the best available tools to navigate your just transition journey.
- Adopt a five-step process for developing a robust just transition plan and move toward a company-wide integration strategy. Drive social dialogue and stakeholder engagement toward a just, equitable, and inclusive transition. Consider how the just transition relates to all business sectors—from energy to agriculture, apparel, shipping, and construction.
- Co-create solutions with stakeholders to build resilient communities and protect livelihoods. Companies increasingly are recognizing the fact that climate injustice can be experienced across the entire value chain—from suppliers to employers and consumers. As climate change impacts increase in the communities in which your workers live, the communities in which your products and services are produced and the communities in which your consumers reside will be affected. Vulnerable, frontline communities have long suffered the impacts of climate change, and such vulnerability magnifies risk. The communities facing climate change-induced droughts, floods, fires, and heatwaves will need business support to build resilience. Create opportunities to work alongside key stakeholders to develop long-lasting solutions.
Limits to Decoupling Drive Calls for Geoengineering
- Leading research suggests that decoupling from GHG emissions is unlikely to occur fast enough to reach the Paris Agreement goals, with current policies set to push global warming beyond 1.5°C this decade.
- As skepticism about the potential of decoupling to limit warming rises, climate experts and world leaders are eyeing alternatives. These range from discussion of different economic models, looking beyond growth, to calls for geoengineering interventions, such as Solar Radiation Management (SRM).
- There is no international governance framework for SRM, and research into its impacts has been ad hoc and fragmented, rather than the product of a comprehensive strategy. Impacts may be unequally distributed, with those most at risk least likely to be represented in decision-making.
Fossil Demand Peaks This Decade, but Not Soon Enough
- The International Energy Agency (IEA) forecasts global demand for oil, coal, and gas will peak before 2030, but warming will nonetheless pass 1.5°C this decade.
- China plans to reach peak coal consumption by 2025. IEA projections suggest it is on track, with slow economic growth curbing demand for energy.
- New data indicates that liquid natural gas, counted on by many to play a key role in the energy transition, may be responsible for up to 274 percent more GHG over its lifespan than coal, largely due to methane leaks in transportation.
Climate Insurance Risk Threatens Properties, Communities, and Economies
- The global insurance standards body is calling on national regulators to do more to increase financial protection for people and businesses exposed to natural catastrophes, as climate change spurs more damaging storms, floods and fires.
- The European Central Bank published findings that only a quarter of climate-related catastrophe losses in the EU are insured.
- Communities heavily impacted by insurance availability can lose businesses, livelihoods, and related fiscal funding for public services.
- Land tenure is critical to enable investment in climate resilience, which can improve insurability and lower premiums.