What does COP26 mean for business?

The stakes for November’s UN Climate Change Conference couldn’t be higher. But what can we expect from the talks in Glasgow? And how will the summit affect business? 

The 26th Conference of the Parties (COP26), the latest iteration of the UN’s annual climate change conference, is scheduled to take place between 1-12 November.

COP26 is the first conference since last year’s deadline for countries to strengthen their 2030 climate targets as part of the ‘ratchet mechanism’ in the Paris climate agreement, signed at COP21 in 2015.

It also comes after a year of unprecedented weather events, from record temperatures and wildfires in Europe to a ‘1,000-year’ heatwave in western Canada and the northwestern United States. In August the UN’s Intergovernmental Panel on Climate Change (IPCC) published a landmark climate study that Secretary General Antonio Guterres described as a ‘code red for humanity’.

Against this backdrop, many are hoping political leaders will agree to deeper emissions cuts and other measures over the two weeks of the summit.

What will the summit focus on?

COP26 has four main goals:

1. Securing net-zero by the middle of the 21st century in a bid to keep global temperature increases below the critical 1.5C threshold.

2. Making progress on climate adaptation measures to protect lives, ecosystems and economies from the impact of global warming. The COP26 action plan for this goal focuses on investment in flood defences, early warning systems and ecosystem restoration, among other things.

3. Mobilising private finance to address the climate challenge (you can read more in ‘A Legal Framework for Impact’ – our analysis of whether the law in key global investment hubs permits – or even requires – investors to try to influence their investee companies and third parties in ways that have a positive sustainability impact – here) .

4. Fostering international collaboration to accelerate progress on climate goals.

What can companies expect from the talks?

While COP has the potential to impact business in lots of ways, here are three things to look out for:

• Due to the pandemic, the parties have not met since 2019. The last COP ended without agreement on the rules to implement Article 6 of the Paris agreement, which is designed to foster ‘voluntary international co-operation’ on climate action and is the last piece of the Paris regime yet to be resolved. Article 6 outlines three mechanisms for voluntary cooperation, including countries trading emissions reductions between them and the establishment of an international carbon market. Finding a negotiated solution to article 6 will be one of the key goals of COP26; if it can be achieved, it could be a game-changer in the fight to reduce emissions and would have a significant impact on business and finance. The parties will be working to resolve the political and technical issues surrounding article 6 in the run-up to COP26 with a view to agreeing the implementing rules during the conference.
• COP26 will focus the world on climate action, driving stakeholders including investors, economists, and citizen groups to further raise the pressure on politicians to accelerate emissions reductions. Further cuts will require new regulations, and COP26 will give business a good indication of where these rules will focus (for example via measures to penalise emitters and encourage low-carbon energy sources) and how they should engage with governments to shape them. Regulatory change is also often a driver of litigation, so any reforms that flow from COP will point businesses towards where future litigation risk could arise.
• There has been a steady rise in the number of companies signing up to the UN’s Race to Zero pledge in the run-up to COP. Thousands of companies globally have committed to eliminating their carbon emissions by 2050, including significant proportions of the world’s largest public indexes. Further progress could be made around COP26, influencing capital flows, innovation, investor sentiment and (again) the potential for litigation.

For more on what the conference means for business, visit the Freshfields climate hub. Arranged around our climate advisory pillars of regulation, litigation, transactions and financing, the site gathers our latest thought leadership and practical guidance on how to navigate climate risk and seize climate opportunity. If you'd like to discuss how COP26 - or any other climate-related issue - affects your business, please reach out to me or your usual Freshfields contact.