![] climatechange.jpg alt=”Illustration of green arrows pointing down, away from green smoke clouds”](https://www.treasurers.org/ACTmedia/Knowledge%20Hub/climatechange_0.jpg)
In November 2020, the UK is due to host the next Conference of the Parties – COP 26.
The conference is important for a number of reasons, as the aim is to set non-binding but agreed limits on greenhouse gas emissions.
Last year’s COP in Madrid fell short of desired outcomes, so expectations are high for COP 26 in Glasgow.
The agenda will include how to attract global climate finance, and further work on international carbon markets. It is a key meeting that will – if expectations are met – affect citizens, countries and the private sector.
Treasurers will need to be ready for potential outcomes of COP 26 and the broader ESG road map, as many proposals will have significant financial implications for corporates.
The ACT Annual Conference later in the year will be a good opportunity for the treasury community to learn more about ESG and share ideas on creating a more sustainable planet.
The UN Framework Convention on Climate Change (UNFCCC) is an international environmental treaty that came into being in 1994.
Its objective is to ‘stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system’.
The treaty sets non-binding limits on greenhouse gas emissions for individual countries and outlines how specific international treaties (referred to as protocols or agreements) may be negotiated to further the UNFCCC’s objectives.
The Conference of the Parties (COP) is an annual event that supports the UNFCCC and assesses overall and specific progress in dealing with climate change. Since 2011 the meetings have also been used to negotiate the Paris Agreement.
Nearly 27,000 delegates arrived in the Spanish capital in early December 2019.
For various reasons (including the importance of preparing for COP 26), expectations were limited, with many countries focusing on technical issues such as the carbon markets via which countries buy and sell carbon credits based on their emissions-cutting efforts.
The global carbon market was established by the 2015 Paris Agreement, and setting up its rules (Article 6) is a key task that should have been completed by COP 24.
Despite the limited ambitions for COP 25, the talks were unable to reach consensus on many topics. The parties could not agree on the remaining rules for the Paris Agreement, especially common time frames for nationally determined contributions (NDCs) and the carbon markets with decisions pushed into 2020.
A key component of the Paris Agreement was setting up a new global carbon market system to help countries decarbonise their economies at lower cost. It is the last unresolved section of the rule book and has the potential to make or break efforts to curb emissions.
The use of carbon markets is a key component of the majority of national climate plans to deliver reductions in emissions.
It enables governments and the private sector to buy carbon credits to develop green projects designed to cut emissions in another country. Countries that have cut emissions beyond their target could sell their surplus to countries struggling to meet their goals.
Depending on the specific NDCs, the trading of carbon credits may not help reduce global emissions.
Key questions that need resolving at COP 26 include:
Getting Article 6 right will be crucial, as weak rules could lead to an increase in emissions and the carbon markets could be used to meet emissions reduction targets on paper while avoiding any real action.
For the treasurer, this may have a significant financial cost.
CO2 emission allowances have doubled in just over a year to approximately $25 per tonne and some organisations think a more realistic price is closer to $70 per tonne.
In 2015, 196 countries adopted the Paris Agreement with the core objective of keeping the global average temperature increase to under 2°C above pre-industrial levels, while pursuing efforts to keep it to below 1.5°C.
It was also agreed to present revised and more ambitious commitments by 2020 and every five years thereafter. COP 26 sets a deadline for countries to present this first revision, and as a result, will be an important milestone for global climate action.
Although there is currently no final agenda for COP 26, there is some consensus that it needs to:
The Association of Corporate Treasurers (ACT) will be monitoring preparations for COP 26 as well as the various other initiatives in the ESG space during 2020.
Treasurers are encouraged to explore the ESG landing page within the Knowledge Hub section of the ACT website, which contains a wealth of material and links to useful information produced by other organisations.
Naresh Aggarwal is associate director, policy and technical, at the ACT
This article was taken from the April/May 2020 issue of The Treasurer magazine. For more great insights, log in to