Beyond the spin - what did COP26 actually deliver?

FS Sustainability is pleased to present this opinion piece from Simon O'Connor, CEO of the Responsible Investment Association Australasia (RIAA).

If there is one thing a UN Climate Change Conference always delivers, it is bucketloads of pledges. But if we sift through the various announcements which came out of COP26 in Glasgow, has the needle on the dial shifted on climate action?

Entering into this COP, we were hurtling towards a devastating 2.7 degrees of warming by the end of the century, with government actions and pledges falling far short of what is needed to avoid catastrophic consequences for the planet, which is limiting global warming to less than 2 degrees, and aiming for 1.5 degrees.

As we wrap up this COP, and look through the noise, commentary and media releases, a picture emerges that shows much has, indeed, changed.

The new story is 2030. As much of the world falls in behind 2050 net zero commitments including, begrudgingly, Australia, a major shift has emerged that recognises that there is no longer time to wait for those emissions reductions to occur in the 2030s and 2040s, but that much of the reductions are required over these next few years. 2030 becomes the goal that will test our ability to drive real emissions reductions, and nations will and should be judged on progress towards a stronger 2030 target.

Delivering emissions reductions is no longer only about national action. A big new shift is the sharp focus on the private sector playing a major role in any climate response. The private sector stepped up in force at this COP, lead, encouragingly, by the global finance community. This was most strongly demonstrated by the Glasgow Finance Alliance for Net Zero commitments, which comprises a staggering 450 finance organisations that oversee $US 130 trillion in assets, who have now committed to net zero by 2050. Importantly, this commitment requires annual reporting on progress, and interim targets to be set. The litmus test for investors will be targets, trajectories and progress in emissions reductions now, not in 2040.

Australia and New Zealand are well represented in the cohort who joined the various pledges that underpin the GFANZ. Recent research by the Aotearoa NZ Investor Coalition for Net Zero showed that the vast majority of asset managers - 89% - either have already or intend to have in place net zero commitments imminently.

The nation-state pledges were many and, in aggregate, are noteworthy as they show a shifting of focus by countries to address many important elements of climate that are essential to combatting climate change, from stopping deforestation, cutting methane emissions, and committing to a transition that is fair and supports workers.

Particularly momentous was the strongest commitment yet to end the extraction and burning of coal for energy. Significantly, 190 countries signed on to the pledge to end all investment in coal power and phase out coal energy generation over coming decades. This, more than any other trend to date, places the thermal coal industry into terminal decline and comes in spite of the softening of the final Glasgow Climate Pact to commit to 'phasing down' coal, rather than 'phasing out'.

So countries have moved, private sector companies have also moved, but importantly in support of all this action, we've also seen important regulatory and standards bodies clarify strong support for alignment to net zero that will be provide the supportive infrastructure for finance and corporate sectors to move in the right direction and measure progress.

The group of central banks and finance sector regulators under the Network for Greening the Financial Sector stepped up the clarity on their commitment to regulate and provide guidance on climate risks. This was backed up by a statement issued by Australia's financial regulators and central bank - APRA and RBA - and follows a recent reiteration of commitment by the RBNZ.

Finally, there was the big announcement that the global accounting standards setter, the IFRS Foundation, is establishing the International Sustainability Standards Board that will bring together and set the globally consistent standards for climate and other sustainability disclosures. This global standardisation elevates sustainability reporting to the same level of rigour as financial reporting, and will be a critical piece that enables investors to comprehensively measure and progress towards these climate commitments, among other themes.

Various pieces of the puzzle have come together at COP, setting out a clear agenda for the work required to protect humans and other lifeforms from the worst impacts of climate change. The flow on effects will see capital flow ever more strongly towards cleaner assets, and more rapidly away from polluting assets, a momentum already under way. But perhaps most importantly, it's become obvious that the time for action is not in two decades time, but now. We will increasingly be measured on our progress this decade and those companies and investors who can achieve the necessary reductions by 2030 will be the biggest winners.

Read more: Responsible Investment Association AustralasiaCOP26Simon O'ConnorGlasgow Finance Alliance for Net ZeroAotearoa NZ Investor Coalition for Net ZeroGlasgow Climate PactIFRS FoundationInternational Sustainability Standards BoardNetwork for Greening the Financial Sector