With the world falling well behind on the Paris Agreement to keep global warming within 1.5 degrees, the pressure to accelerate action at COP28 was high, even if stakeholder expectations of significant progress were realistic at best. Within that context, the final deal agreed at the summit represented mixed news. On one hand, a watershed moment, as for the first time an explicit reference was included calling for the world to transition away from fossil fuels in the energy system. On the other hand, there are still many areas that need to be addressed to accelerate action at the level needed.

Now the conference is over, the hard work of implementation will need to gather pace as companies are tasked with rolling out credible and robust transition plans to make the low carbon economy a reality. A focus of the discussions during COP28 demonstrated that businesses now increasingly understand that low carbon transformation brings significant opportunities for differentiation and value creation.    

Of course, there are still many headwinds to overcome in areas as diverse as geopolitics, the cost of capital and supply chains. Nevertheless, I left COP28 with the strong sense that companies are committed to action and are willing to collaborate across industries, governments and civil society to drive urgent change. This is essential if we are to meet the aims of the Paris Agreement.

Tom Reichert, Group CEO

5 key climate actions for business

Based on COP28 activities and outcomes, there are five imperatives businesses must focus on to accelerate the pace of change:

1. Treat decarbonization as a sprint, not a marathon

It is vital for companies to develop and implement transition plans at pace. These plans must include strategies from corporate to product level, enabling consumers to make more informed purchasing decisions and channelling money into sustainable product design. The commercial benefits of this approach are already visible at market level with commodities, such as low carbon aluminium, selling for many multiples the price of standard aluminium.

An important part of COP28 was the launch of a suite of measures to realize the climate and socio-economic benefits of hydrogen. Hydrogen will be critical to helping businesses decarbonize and particularly those in hard-to-abate sectors. ERM is working with the Hydrogen Council on an ‘SDG Compass’ to guide how hydrogen projects can deliver socio-economic benefits, alongside protecting nature, in line with the Sustainable Development Goals (SDGs).

COP28 also saw several other commitments to decarbonization, largely focused on the industrial sector. These included a pledge by oil and gas companies to reduce methane emissions 30% by 2030 underpinned by $1 billion in finance, and the launch of the Oil & Gas Decarbonization Charter. These advances are welcome given the large climate impact of the industrial sector, but there is growing stakeholder pressure for more ambitious and faster action.

2. Triple up on renewables

COP28 has given the renewables market a shot in the arm, with agreement to double energy efficiency and triple renewables capacity by 2030. Action to increase clean energy generation could not be more urgent. ERM published its COP28 Global Offshore Wind Outlook report, which highlighted that at current rates of growth, the offshore wind market will only reach 250GW by 2030 – just half of the capacity needed to keep global warming below 1.5 degrees, according to the International Renewable Energy Agency’s latest World Energy Outlook Analysis.

Accelerating clean energy production requires an end-to-end approach, tackling issues on the grid side, permitting and supply chain requirements holistically. In ramping up their clean energy supply, companies can better manage risk and create value by taking steps to engage with their renewable energy supply chain, explore alternative sourcing options, seek out collaboration opportunities and partnerships and engage with policymakers.

Enabling clean energy to grow at the pace and scale needed to meet global climate targets will also depend on the rate at which the critical minerals needed to build them can be recovered and mined. This will be challenging, requiring circularity to be built into product lifecycles to recycle minerals as far as possible and raised environmental and social standards within critical minerals mining to mitigate production delays.  

3. Solve for climate by including people and nature

ERM has long championed meeting the Paris goals by integrating three interlinked elements: climate, nature, and people as part of a just transition to a low carbon economy. This year’s COP showed that many businesses now take a similar view. There was much discussion around the just transition, obligations to the most vulnerable communities and climate justice, as well as some concrete action with the loss and damage fund, with initial funding coming in at close to $429 million.  

Nature was firmly on the agenda, with discussions around the interplay of water, nature, and ecosystems. There was also new momentum around creating better and more resilient food systems, not least the Declaration on Sustainable Agriculture, Resilient Food Systems, which includes a commitment by some 146 nation states to scale-up adaptation and resilience activities and responses to reduce the vulnerability of farmers, fisherfolk and other food producers to the impacts of climate change.

Moving forward, businesses need to integrate human rights and nature as a core part of their climate strategy and build holistic due diligence processes to monitor and develop their supply chains in line with their public commitments and regulatory requirements.

4. Private finance must step up to the plate

Although there were some promising early finance commitments at COP28, with $85 billion mobilized in the first five days of the summit, including the United Arab Emirates pledge of $30 billion to a new fund investing in climate projects, more work will be needed to finance the energy transition

Private finance will need to play a much more important role in building a low carbon economy, particularly in terms of rebooting the carbon markets. The Glasgow Financial Alliance for Net Zero (GFANZ), which now comprises 675 financial institutions from 50 countries, made some headway at the summit, particularly around the development of global carbon markets investment architecture. Concurrently, the US State Department along with The Rockefeller Foundation and the Bezos Earth Fund launched a framework for the Energy Transition Accelerator - a program designed to generate funding through the voluntary carbon market so that developing countries can more easily transition to cleaner sources of energy.  

5. Ramp up accountability

Businesses and the financial sector need clear lines of accountability around their climate goals and actions. To that end, in our role as a Capacity Building Partner for the International Sustainability Standards Board, ERM engaged with businesses at COP on how to help them prepare for the next wave of sustainability-related disclosure requirements.

Here, businesses have a choice. Those that go beyond the minimum required to comply with mandatory disclosure requirements can use disclosure as a launchpad to improve their business performance, leveraging investment and market opportunities to strategically transform and thrive in the future.

While the voluntary carbon market has experienced some challenges to date, COP28 provided some initial signals of a reset of the market, with more transparency, integrity, and genuine benefits for all. Accountability will be key to rebuilding trust in the carbon markets, through reliable verification of key environmental and social indicators. The voluntary carbon market is currently small but could grow to $300-500 billion a year by 2050, addressing a meaningful part of the nature finance gap. There is no net zero without nature protection and there is a significant role for high quality, high integrity carbon credits to benefit communities and provide nature benefits.

The doors have closed on another COP. Delegates have hung their lanyards and returned home – some hopeful, some no doubt frustrated that more was not achieved. What matters now is what comes next. Boardrooms, executive teams and investors need to act fast and with determination to start transforming the economy. It can no longer be business as usual. We must all make a difference.