BCG's Michel Fredeau reflects on the challenges of COP25, the good news on climate, and the transformations needed in advance of COP26.
Authored by Michel Fredeau, Managing Director and Senior Partner, BCG
COP25 did not lead to the level of progress that we were all hoping for. Countries’ ambitions moved up only slightly, and negotiations failed to deliver an agreement on Article 6 to unlock credible global carbon markets (in particular, a mechanism that protects environmental integrity and avoids double counting).
But what is easily lost in the headlines is that despite the actions of a few (major) blockers, business, investors, and other non-state actors are increasingly stepping up to the climate challenge. COP25 might have been a disappointing climate negotiation, but the level of engagement and commitments from business and finance that I saw on the ground give reason for hope.
The Good News on Climate
There’s plenty of work ahead of us, if we’re to meet the net-zero challenge and keep global warming to well below 2°C—ideally 1.5°C. But here’s what makes me hopeful.
Increasingly, we are seeing companies commit to decarbonizing their operations and transforming their business models to align with a net-zero world. The Business Ambition for 1.5°C campaign now includes 177 committed companies from 36 countries, representing a combined market cap of $2.8 trillion, and, more important, cumulative emissions estimated to be equivalent to France’s total annual CO2 emissions. Beyond these leading 177 companies, there are many more that are in earlier stages of their climate journey. They’re still working through the difficult questions and making progress, even if they haven’t yet figured out how to realign their operations to a 1.5° pathway. The numbers will continue to grow.
But companies can’t tackle climate change alone. In a meeting with business leaders during COP25, UN Secretary General António Guterres underscored how crucial it is for companies, investors, and governments to work together in this effort. We’re seeing this level of partnership happen more and more. I’m encouraged by efforts such as the Mission Possible Platform, which is fostering pre-competitive collaboration within and across sectors—including aviation, shipping, cement, and steel—to accelerate the decarbonization of industry. We will need to double-down on this kind of collaboration in 2020 and throughout the next decade. We need to change the system and the context in which we all operate by changing how we work, orchestrating the right set of demand signals, and fostering innovation. We need to work together like never before.
The ambition and commitments that we’re seeing would be meaningless if they weren’t grounded in some form of accountability system. This is why I am heartened to see the increasing relevance of CDP, TCFD, and the Science Based Targets initiative. As investors turn their attention to climate-related financial risks and the way in which companies are redesigning their strategies in response, these initiatives are quickly becoming standard for corporate transparency and leadership. The next hurdle, as we point out in our recent joint WEF-BCG publication on the net-zero challenge, will be to move from a few hundred companies to millions. Climate leadership needs to go mainstream.
It was also encouraging to see progress from the public sector, especially from a finance lens. The EU announced its moonshot commitment to become the first carbon-neutral continent by 2050, which it’s backing up with €100 billion in financing to fund a “just transition.” And just a few days ago, it agreed to the first comprehensive guide or taxonomy for green financing, which clarifies what counts as a green and sustainable financial product and should unlock additional investments for climate action.
In addition, finance ministers were present for the first time at the COP—a clear sign that agendas for climate action are becoming well integrated into the world’s financial systems. The Coalition of Finance Ministers for Climate Action launched the Santiago Action Plan—an exciting commitment by 51 countries, covering 30% of global GDP, aimed at accelerating their shift to low-carbon economies via carbon pricing, macro-fiscal policy, financial incentives, and transparency and disclosure initiatives focused on climate-related financial risks. Further, the Central Banks and Financial Regulators Network for Greening the Financial System (NGFS) continue to add members and promote best practices to manage climate-related financial risk.
The Missing Pieces of the Climate Puzzle
Around the globe, we’ve seen great mobilization from the general public, largely inspired by youth. These voices were present in the rooms and hallways of Madrid, but their words are not translating into clear demand signals that inspire greater, faster change among companies and governments. We won’t be able to transition to a net-zero economy until all people and companies, as buyers and voters, demand low-carbon products and services.
This requires behavioral change, which comes from combining the right incentives with education. Here, companies have a responsibility, as well: to educate and nudge their own employees, supply chain partners, and consumers, until we have 7 billion people who are expecting—and insisting on—sustainable goods. B2B and B2C initiatives at that level can be big enough to change the system.
But we also need to continue working toward a just transition, recognizing that the societal impact of climate action will not always be positive. Governments and companies must work together to design innovative programs and solutions that minimize job loss and both benefit and empower the lower and middle economic groups.
Looking Ahead to COP26
I look forward to the great progress that can happen between now and COP26 in Glasgow. As with any successful transformation, we need a clear set of objectives, milestones, and KPIs to work against. Countries need to deliver that high ambition. Private and public finance need to unlock resources. And we all need to work together to move from ambition to implementation. In order to truly monitor progress on emissions reduction and systems change, we need to establish a transparent, reliable, global tracking mechanism against an agreed upon set of KPIs that deliver the change we need to see, in the short and long term.
None of this will be easy. But I remain hopeful and excited about the year to come and the contributions we at BCG can make.
Michel Fredeau was among the distinguished speakers to participate in World Climate Summit - The Investment COP 2019 in Madrid. This article was originally published on LinkedIn.