The headlines marking the end of the COP26 global climate summit were mostly gloomy, much like the weather in Glasgow. Reports focused on unenforceable pledges by countries to cut carbon levels and tepid increases in funding for poor countries most affected by climate change. But there were significant accomplishments last week in Glasgow and beyond.
The successes noted by most media accounts included agreements to reduce methane emissions, a potent greenhouse gas, and begin the phase-out (ok, “phase down”) of coal. The most significant to us, however, was setting a strong framework for the global carbon market. Accounting for carbon cuts and ensuring the integrity of tradable offsets has held back the market’s growth, and the agreement provides the clarity that participants need. Most of all, it should open the way for more private-sector investment, which is essential to get to a future of net-zero emissions.
Tellingly, most media reports gave only passing attention to the carbon market pact, which, admittedly, has some technical aspects that are challenging to explain. The New York Times didn’t mention the deal until the 28th paragraph of a page-one article. Even many specialist newsletters, usually alert to even slight tremors in their patch, overlooked the news.
Apart from the Glasgow negotiations themselves, progress was also visible in two important areas. Nuclear power – the largest source of carbon-free electric power – finally got the recognition its advocates have long sought. Support for nuclear as part of a broad-based solution to climate change alongside wind, solar and other renewables has been building among academics, policymakers, regulators and certain environmental groups for some time, but this week it burst into the open.
Remarkably, major news outlets – The Economist, Financial Times, and The Atlantic among them – carried prominent features on the desirability of keeping existing nuclear plants open today and embracing new nuclear technologies for the future.
Nuclear power is rarely mentioned in investment and business circles, and the attention from these leading publications will help nuclear elbow its way into the green finance conversation.
The other development that didn’t happen in Glasgow but was immensely important for climate investing was the three-way merger of the leading sustainability standards bodies. The International Financial Reporting Standards Foundation (IFRS), Climate Disclosure Standards Board and Value Reporting Foundation (VRF) announced they will merge to form the International Sustainability Standards Board (ISSB). (The VRF was created earlier this year in a merger of the Sustainability Accounting Standards Board (SASB) and the International Reporting Council.)
The merged group will work toward a single global standard for sustainability disclosure. That will not only simplify the task of climate reporting for corporations – who’ve had to contend with a dizzying jumble of frameworks – but will give investors consistent, comparable data they can use for lending, investment and risk management decisions.
A global standard will also make clear communications by corporations and asset managers about their climate risks and strategies even more important. Those communications will have to move beyond the vague commitments and lofty aspirations so often seen today, and toward concrete, measurable metrics and timetables. Many organizations will find it a challenging task.