In short, the COP is the gathering of government representatives from almost all countries in the world to agree on a strategy to tackle climate change. The first COP was held in Berlin in 1995. This year, the 26th meeting was organized by the UK in Glasgow. The main objective was for countries to update their plans for reducing carbon emissions. Other subjects discussed during the two-week-long meeting included how to strengthen adaptation and resilience to climate impacts and scaling up climate finance.
Here are the main takeaways of the conference:
- Most participants, including the United States, China and the 27 members of the European Union, arrived at Glasgow with more ambitious plans for reducing carbon emissions. But many think it's yet too late and that the new targets aren't enough. There's still a big gap between current country targets and what scientists are recommending to revoke catastrophic climate consequences
- The biggest carbon emitters, China and the US announced a climate collaboration for the first time. This was a surprise for many, and the deal covers topics including methane emissions, the transition to clean energy, and de-carbonization
- More than 133 countries signed an agreement to protect world forests and end deforestation by 2030. Countries with the highest rates of deforestation like Brazil, Indonesia, and the DRC signed the agreement
- Costa Rica and Denmark led a first-of-its-kind alliance to completely stop oil and gas extraction called the Beyond Oil and Gas Alliance (BOGA). France, Greenland, Ireland, Sweden, Wales, and the Canadian province of Quebec also joined, and California, New Zealand and Portugal became associate members. The first step for member countries is to commit to ending new licensing rounds for oil and gas exploration and production
- As environmental impact becomes an increasingly hot topic, industries are allying to have a word in this matter. The Net Zero Banking Alliance is worth mentioning, which today has 95 bank members and 39 countries, representing 46% of the total banking assets. Each bank's CEO must sign a commitment letter to become a member, including transitioning their lending and investment portfolios to net-zero GHG emissions by 2050 or sooner.
At Payhawk, we believe that climate action and sustainability are essential and not just endeavors for big financial institutions and banks. Many big corporations, and the financial sector, in particular, are aligning their corporate strategies with environmental, social and governance (ESG) principles, and we recognize the need for growing businesses to play their part too.
Investors, for example, are now looking not only for economic returns but also for a positive social and environmental impact from their investments. Recent graduates are also looking to work for companies that have an ethical and sustainability focus. To be sustainable and to measure your mark has become a norm, not a trend or greenwashing.
Why ESG matters for business
Business owners, or CEOs, might ask themselves; why should my business become more sustainable? And what are the benefits? A recent paper from McKinsey mentions that including ESG principles can create value in your company in five different ways by letting you:
- Access new markets and attract more conscious consumers
- Reduce costs via measuring your environmental footprint
- Lessen your risk of facing government sanctions
- Attract more qualified workers and create a sense of purpose that can increase productivity overall
- Differentiate yourself from other companies and attract new kinds of investors.
PwC has surveyed private equity investors in the Global Private Equity Responsible Investment Survey for the past seven years. Results show that more funds are flowing to sustainable-centric companies and how sustainability issues are becoming a central topic in board meetings and as part of the mission for many companies. ESG has gone from being considered a super-specific area of compliance, or a specialist product, to becoming an overarching framework that informs the strategic thinking of the entire firm.
Commonly, companies can mix up purpose and sustainability (ESG). As this Harvard Law paper mentions, purpose comes first and then sustainability is a contributor. Purpose is defined as producing profitable solutions that solve the problems for people and the planet. Think about your business; what is its purpose? At Payhawk, we try to solve the expense management headache for companies to empower people to focus more on their careers and less on finance admin. Find out more here.
Now, you might think that many corporate promises are only made to attract more clients and are far from achieving any kind of global good. The truth is, this does happen and will continue to happen unless there's a regulated market or a standard that all companies can follow.
In March 2021, a new regulation came into effect in Europe. The EU's Sustainable Finance Disclosure Regulation (SFDR). It regulates the disclosure of sustainability efforts of fund managers, insurers and banks that provide sustainable financial products and services. Another way companies can demonstrate that their actions are well-intentioned is by having a stamp of approval from an established certification body, such as B Corporation, 1% for the planet, FSC, among others.
At Payhawk, we've started the process of becoming a B Corporation. The first step of this certification is to analyze the impact of the company. A free tool called the BIA assessment is available where you can measure your impact in the day-to-day operations and your business model today and establish your goals for the future. We plan to have the assessment ready by the end of the year so we can start the process to become fully certified and make impactful sustainability decisions.