COP27: Key outcomes for board directors

COP27: Key Outcomes For Board Directors

COP27 background and key ambitions

The United Nations global climate conference in Sharm El Sheikh, Egypt, COP27, concluded on 20^th November 2022. It gathered country, public and private-sector leaders from all over the world with the aim of negotiating and increasing commitment to limit global warming to 1.5^oC as stated in the Paris Agreement.

COP27 had an important focus on implementation: moving from setting goals to taking credible action to achieve net zero targets. Being held in Africa, key points on the agenda included gaining agreement to support emerging economies in their net-zero transition (referred to as the Just Transition) and also to support those already seeing the devastating impacts of climate change with few resources to address these impacts (termed Loss and Damage).

Key outcomes from COP27 and their relevance to board members

If current pledges by national governments are fully implemented, the world would be on track for 2.5 ^oC warming by the end of the century. Therefore to keep 1.5 ^oC alive, business has a crucial role to play to increase ambition and boards are critical in driving this change.

COP27 achieved several breakthroughs, including the first Just Transition Energy Partnerships (JETPs) and an agreement to provide loss and damage funding to vulnerable countries. However, the global meeting received criticism for the lack of progress at country level to keep within 1.5^oC of warming by 2050, and to view this as a limit not a target. Private sector initiatives called for greater government action on climate change including the We Mean Business Coalition and a coalition of 602 investors representing $42 trillion in assets under management, in their 2022 Global Investor Statement to Governments on Climate Change.

The important role for businesses to deliver and drive climate action throughout their operations and industries has never been more urgent and was made clear by the active business participation at COP27. The role of boards in guiding their executive teams and stewarding their companies in the net zero transition will be crucial to keeping the world within the 1.5^oC limit.

Key takeaways for board members from COP27

1. Official regulatory bodies are working hard to clarify and harmonise standards for climate-related reporting which will support transparency and help to combat greenwash

The International Sustainability Standard’s Board (ISSB), part of the IFRS (International Financial Reporting Standards), announced a new Partnership Framework to increase alignment between standards. As part of this partnership, CDP will incorporate ISSB climate-related disclosure standards into its global environmental disclosure platform.

ISSB also announced that companies will be required to use climate-related scenario analysis to inform resilience analysis.

Key questions for non-executive board directors to raise on climate reporting and disclosure:

Is your company undertaking materiality analysis and risk planning with climate challenges included? How is this reported to the board?
Which climate scenarios does your company use in its materiality analysis? Which board member(s) have reviewed the impact of the scenarios?
Does your company collect and report climate impact data? How is this reported to the board?
Is the company adhering to any of ISSB’s disclosure standards? Who from the board understands and guides climate disclosure?
How will the ISSB Partnership Framework affect your company’s approach to collecting and disclosing data?
Is your CEO requesting and receiving regular reports on your company’s climate-related risks? Is your CEO aware of how changing regulation may affect how your company must report and disclose climate-related information?

2. Acting on climate targets and developing credible action plans was an important focus of COP27

Tools and guidance for businesses to create and implement climate action plans were released by key initiatives including the Glasgow Financial Alliance for Net Zero (GFANZ) which published recommendations and guidance for financial institutions; as well as the Transition Plan Taskforce (TPT), announced at COP26 by the UK government, who collaborated with international partners, such as GFANZ and ISSB to develop a disclosure framework with implementation guidance for companies and financial institutions to develop gold-standard transition plans.

Key questions for non-executive board directors to raise on transition planning:

Does your company have a clear net-zero transition pathway, with short- and medium-term targets in place?
Who is responsible for the net-zero transition plan and is it embedded across the organisation, with accountability at CEO level as well as operational levels?
Does your board receive regular updates on the organisation’s progress against its climate targets?
Is your board linking C-suite and executive compensation to your company’s progress on its climate targets? How effectively does this incentivization support your company in meeting its climate targets?

3. An increasing number of organisations are facing legal challenges for not providing credible pathways and action plans to support and achieve their net zero targets

A list of robust recommendations have been published by the UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities to guide and support businesses to set and attain their net zero targets, and not be undermined by greenwash. These recommendations align with a set of Net Zero Guidelines also published at COP27 by the International Organisation for Standardization (ISO), which offers a single core reference text for credible net zero action.

Key questions for non-executive board directors to raise on accountability to avoid greenwashing claims:

Are your company’s net zero targets backed up by credible action plans? How are these targets and their associated pathways reported to the board?
What frameworks has your board put in place to ensure there is accountability in meeting your company’s climate targets? Does this accountability apply at CEO level as well as operational levels?
Is your board aware of any legal risks it could face, should your company face greenwashing claims on its net zero targets?
How is the board ensuring that the CEO delivers on the climate action pledges? Is the CEO receiving regular updates on the progress of these plans?

4. The importance of public-private sector partnerships and international collaboration was reinforced over the two weeks of COP27

Businesses should engage and collaborate with state actors throughout their supply chain and with private-sector actors within and across industry, to reduce emissions across the whole value chain of their organisation. The Yearbook of Global Climate Action 2022 from the Marrakech Partnership, provides an outline on how to accelerate sectoral systems transformation, with case studies and recommendations, by strengthening international collaboration in the sectors from both parties and non-party stakeholders.

Key questions for non-executive board directors to raise on collaboration:

How is your organisation engaging with suppliers and customers to reduce emissions across its whole value chain? How are these emissions reductions reported to the board?
How is your organization working in collaboration with others to mobilise climate finance into projects reducing emissions? Is your board aware of the climate impacts of its investment portfolios and actively choosing to transition towards net zero or climate positive investments?

What are the upcoming priorities for board directors?

Board directors have a critical role to play in guiding their company and its ecosystem to deliver climate action and keeping the 1.5^oC limit within reach. There are tools and techniques a board director can leverage to make this happen, from requesting clear climate targets and net zero transition pathways, to ensuring the relevant climate-related data is reported to the board and CEO, to incentivising executives.

The Climate Governance Initiative (CGI) supports boards of directors across the globe in making climate a boardroom priority by promoting the implementation of the Principles for Effective Climate Governance. CGI resources are board-focused and support directors at all stages of their climate journey. To follow the theme of COP27, and ensure that businesses are moving from ambition to action, read Ambition to Action: Briefing for Board Directors which summarises the four basic requirements for board directors to guide their companies to take credible climate action.

For guidance on how Chairs can influence climate action, insights and inspiration are shared in the guides The Chairpersons perspective: Shaping the boards strategic direction on climate and The Chairpersons Guide to a Just Transition.

Looking to the year ahead

In December 2022, Montreal will host the UN Biodiversity Conference (COP15) with the aim to adopt and agree the post-2020 Global Biodiversity Framework to halt and reverse nature loss. It is expected that this year’s biodiversity COP will bring together more businesses than ever before, signalling the private sector ambition to reduce nature loss and enhance biodiversity, and also emphasising the intrinsic links between action on climate and action to protect and enhance nature.

Next year’s UN global climate meeting, COP28, will be hosted in the United Arab Emirates and significantly mark the end of the first Global Stocktake. This stocktake process began at COP26 and will inform the 2025 Nationally Determined Contributions (NDCs) to ensure the levels of ambition align with the requirements to reach the goals of the Paris Agreement. It will be crucial to ensure the accountability of climate commitments from businesses, investors, cities and regions, and will provide an opportunity for non-state actors to offer solutions to challenges faced by governments.