AT Think

Key business takeaways from COP26

Amid what is arguably one of the most crucial times in the fight against climate change, I had the incredible opportunity to join the conversation at the COP26 climate summit in Glasgow. It was the first time EY had an active role at COP, and we stood proudly alongside business leaders, NGOs, activists, government officials and dignitaries.

The steps taken at COP26, such as the creation of the Glasgow Climate Pact, will continue the positive momentum for change. I’m hopeful that world leaders will take future actions to limit global warming to 1.5 degrees Celsius. As primatologist Jane Goodall says, “Hope is a call to action.”

Reflecting on my time in Glasgow, two things are clear: Businesses want an active role in the climate solution, and tax policy will be on the agenda. To proactively participate in climate mitigation efforts, businesses need to understand the impacts of the Glasgow Climate Pact, seek a trusted advisor to explore the carbon credit market and learn about the carbon regimes across the globe.

What’s in the Glasgow Climate Pact?

The Glasgow Climate Pact is the first United Nations agreement that mentions fossil fuels and asks countries to reduce their use of coal and “inefficient fossil fuel subsidies.” It asks countries to improve their 2030 national climate targets by the end of next year. The agreement establishes a dialogue for a new United Nations body to help vulnerable countries address the consequences of climate change. But what I’m most excited about is that the agreement establishes new rules for assessing carbon credits. This was a sticking point in the Paris Agreement, and now it appears to have been resolved by the Glasgow negotiations.

What businesses should know about carbon credit rules 

There was substantial progress at COP26 to standardize a carbon credit market as part of the international carbon-trading agreement. Under the revised Article 6 of the Paris Agreement, the global carbon credit agreement establishes the rules around a carbon marketplace. The agreement is intended to lead to more carbon trading and renewable energy investment, and it establishes new, clearer accounting guidance for emissions trades between countries. This “integrity framework,” as it’s being called, could result in an abundance of investments for renewable energy projects and environmental protection efforts. It could also prevent potential corporate “greenwashing” by establishing a more robust set of standards and accounting for carbon credits, and provide needed tools for a robust and accountable carbon market.

Companies should prepare for a new carbon credit accounting and market to be established. That could impact the way they offset residual emissions. Governments need to take policy steps to implement a carbon credit market. It’s prudent for businesses to partner with advisors to understand who the governing body will be and how the marketplace will be moderated. These climate-focused policies can have global and local economic impacts while also creating new investment opportunities and potential risks.

Keeping pace with carbon regimes

Staying on top of the evolving sustainability policy landscape is critical for businesses that wish to take action on climate change and prepare for policy-related initiatives. Businesses need to evaluate the physical, market and regulatory impacts of climate change. Examining work practices and prioritizing long-term value and value-led sustainability are essential. Organizations are being asked to disclose their environmental, social and governance efforts. Tax departments need to be at the table when discussing longer-term strategies, since they play a key role in managing the obligations, risks and impact that increased environmental regulations introduce.

Now more than ever, companies need assistance in building, implementing and reporting on global, enterprise-wide strategies that address the climate emergency. One tool that could be helpful in a business’ climate change journey is our EY Climate Cash and Tax Barometer. It reviews public and private spending to address climate change and includes interviews with sustainability officers so that others can learn best practices.

To truly make their business stand out in 2022 and beyond, it’s imperative that leaders embed these considerations into their mission and overall strategy.

My hope is that COP26 will encourage more businesses to make climate change a priority so that, together, we can create a better, more sustainable working world.

For reprint and licensing requests for this article, click here.
Tax Tax credits ESG Climate change EY
MORE FROM ACCOUNTING TODAY