Podcast: Brain Food for General Counsel

The meeting in Glasgow is described as ‘the last best chance’ to tackle the climate emergency. We hear how big the stakes are from climate scientist Tamsin Edwards; former UK minister and COP negotiator Douglas Alexander talks us through the COP process, and Michael Watson of Pinsent Masons tells us why lawyers are vital to companies’ response.

Transcript

Matthew Magee:

Welcome back to Brain Food For General Counsel after a bit of a break, but we’re back to bring you thoughts and inspiration to help you navigate your organisation through turbulent times.

I’m Matthew Magee, a journalist here at Pinsent Masons and I’ve never mentioned it before because it didn’t seem relevant, but we come to you each month from a small home studio in Glasgow.

Well, it’s relevant this time because a ring of steel has been thrown around west central Glasgow and the planet’s most powerful people are on the way here to try to save the world.

COP26 will take place in Glasgow in early November, and it is the biggest moment for action on the climate crisis since world leaders pledged to restrain temperature growth and fund global climate action in Paris in 2015.

It’s a showy set piece and something of a return to multilateral action after nearly two years of Covid, but it is also a crucial working meeting where we will find out whether or not the ambition to keep temperatures to within 1.5 degrees of pre-industrial levels is going to be achievable.

So what does it all mean, how does it work, and what is the role of business? We’ll find out, guided by a climate science expert, from someone who has actually negotiated on the UK’s behalf at a COP meeting, and from an expert on how businesses can begin to deal with the climate crisis.

We’re going to explore what the likely outcomes of COP26 are and look at some of the detail on how these major decisions will be made with former UK minister and former COP negotiator Douglas Alexander; we’ll monitor how we’re doing so far with climate scientist Dr Tamsin Edwards, and Michael Watson of Pinsent Masons will explore some of the challenges businesses face in taking climate action.

But first a quick primer on what COP26 is: the Conference of Parties to 1992’s UN Framework Convention on Climate Change is the main vehicle for all the world’s countries to agree action to tackle the climate crisis. Major breakthroughs were made in Kyoto in 1997 and Paris in 2015. The Paris Agreement committed countries to put in place policies and commitments to limit temperature growth to below two degrees celsius above pre-industrial levels, and to aim to keep it to below one point five degrees. These commitments are called nationally determined contributions, or NDCs, and they are the currency of COP negotiations.

COP meetings review the progress of these plans. Glasgow is important because it was meant to happen in 2020, five years after Paris. The Paris Agreement says countries must update their plans every five years so, after a Covid-caused one year delay, Glasgow’s is the meeting when this overhaul must happen.

So where are we? How close have we come to reaching the two degree target since Paris? I’m afraid the news is not good. Dr Tamsin Edwards is a climate scientist specialising in the modelling of the impact of our actions and one of the authors of reports by the Intergovernmental Panel on Climate Change, the reports that governments around the world rely on for climate intelligence.

Dr Tamsin Edwards:

We are heading for about three degrees of warming so that is well past the Paris Agreement target of well below two degrees and pursuing efforts to one and a half degrees. If we take into account the pledges that we have put in place, the NDCs of the Paris Agreement, then we start to get sort of below two and a half degrees and edging to two degrees, clearly we are not there yet; it is getting better but we are not there yet. Emissions are probably going to keep increasing for a while or perhaps plateau, but we need them to be sharply decreasing. It was always part of the Paris Agreement that every five years under the ratchet mechanism they call it, the different participants and countries would upgrade their NDCs, the nationally determined contributions, and so the Glasgow meeting is the one where the five year mark is met and so there is an expectation of an upgrading of ambition to really say ‘okay we have got more ideas and more commitment to how to reduce emissions’. But the simpler answer is that we have to start now, we have to start critically now to reduce emissions because we cannot wait another year or another five years because it is so sharp.

I mean just to illustrate the steepness of the decline in emissions that we need to really limit warming to one and a half degrees; during 2020 with the massive reduction of course in transport and production of the pandemic, global CO2 emissions reduced by 7% instead of increasing by about 1% each year as it had been doing recently or increasing 3% per year which it had been doing in the 2000s. That is about 2.4 billion tons of CO2 that declined but we need to be decreasing CO2 by 1 or 2 billion tons of CO2 ever year this decade to be on track so sort of half to the majority of the impact on emissions that Covid had. Obviously we do not want to do it the same way but it just shows it is an extremely large scale, the phrase that the IPPC Report use is, if we do not have immediate rapid and large scale reductions in greenhouse gas emissions, then one and a half degrees will be beyond reach and I think that is pretty clear.

Matthew:

It is clear, then, that an awful lot rests on Glasgow, where countries will outline the actions they will take, but also where countries will ask why some of the $100bn in climate funding promised by rich countries has not yet been paid out.

Douglas Alexander is an ex UK government minister who was one of the UK’s representatives in the Copenhagen COP talks in 2009. He has a firm view of what is needed in the next three weeks.

Douglas Alexander:

Thinking about Glasgow, the single most important number that we should all have in our heads is one and a half degrees. Do the collective commitments of the governments of every country in the world mean that when the scientists run the numbers, we can limit temperature rise to one and a half degrees? And actually amidst all of the complexity that simple equation is going to shape the future of all us as individual citizens, all of us as companies, all of us as countries and in that sense that is the key so I would think, think about one and a half degrees as the test for Glasgow.

And if you want to understand what is going to unlock those negotiations, retain that figure of $100 billion because as the delegates arrive in Glasgow, there is a fundamental trust deficit, the leaders of many of the world's poorest countries simply do not believe that if they sign up to ambitious goals, the richest countries in the world will meet the promises that they made many years ago in 2009. So if you like finance can unlock ambition in Glasgow and that is why it is critical that governments do more and pay more in the richest parts of the world and at the same time, make commitments that allow us credibly to keep one and a half degree temperature rise within reach.

There are many insiders who are worried that one and a half degrees temperature rise is slipping out of their reach rather than moving towards us because the level of ambition that has been shown in the nationally determined contribution by each of those 197 representatives is not yet sufficiently ambitious for the scientists to be able to say that yes we have protected temperature rise to just one and a half degrees.

The Copenhagen Conference Of The Parties back in 2009 that I attended as part of the British ministerial delegation has become famous, or should I say infamous, for its failure rather than its success and in contrast in 2015 in Paris, the world came together rather than came apart in a climate negotiation so basically it went very well in Paris, it went very badly in Copenhagen and some lessons were learnt in between. One lesson was: bring world leaders together at the begin of the summit, not at the end of the summit. When they gathered in Copenhagen, the momentum had already been lost, they arrived at the beginning of the Paris Conference.

Do the work geopolitically to align the big players before the conference so prior to Copenhagen the work had not been done to align China, the European Union and the United States. Before Paris we saw the alignment of China, the European Union and the United States and then rigorously managed the process of the two weeks of the conference. That was done brilliantly by Laurent Fabius, the French Foreign Minister in Paris and not so successfully by the Danish host in 2009 so there are some really powerful lessons from history as we look ahead to what is going to begin in Glasgow at the beginning of November.

Matthew:

China’s president Xi Jinping will not attend, which isn’t a great sign.

But there are grounds for optimism. Tamsin says that as more pledges are made by countries the ticker is counting down from the current three degrees towards two. And there is no doubt that climate is a permanent fixture near the top of the political, social and business agendas in a way that just wasn’t true two years ago.

Michael Watson, who advises companies on how to tackle climate issues for Pinsent Masons, has been as surprised as any of us at how quickly it has jumped up the priority lists of businesses and investors, and thinks this can have a big impact.

Michael Watson:

The fastest and biggest impact has come from the intervention of investors: financial stakeholders and businesses really understanding and pushing the investee companies to make these changes, generally in my view ahead of regulation. Regulation is catching up. The interesting aspect of a climate change is that that trend is likely to continue, i.e. enlightened self interest will in many respects, in most respects keep ahead of regulation which at times are struggling to keep up. If you are lender to a business and your average loan life is seven years but the average life of a significant impact of climate change on the operational viability of your business is four years, clearly everybody should be interested in mitigating climate change and mitigating the impact of climate change in that business and I think that kind of enlightened self interest I mentioned earlier is really at the heart of all this and the role of investors, lenders and financial community in stimulating and accelerating that change has been gratifying actually but it is only the start of course.

Matthew:

I have been quite taken aback with the speed with which investors and financiers have demanded that projects and companies they invest in have answers to sustainability questions. It is having a huge influence on companies’ behaviour, and nobody is quite sure why it happened so quickly.

Perhaps as Covid lockdowns hit we all had more attention to give. Maybe years of campaigning paid off. But Douglas has a theory: that some sections of the finance industry just had better data than anyone else.

Douglas:

Well I spoke to Christiana Figueres recently who was the lead negotiator in the successful Paris Conference Of The Parties that led to the Paris Agreement in 2015 and she like you singled out the finance industry as the sector of the economy that has stepped up most since Paris in 2015. Both governments and countries had every reason over the last 18 months during the horror of the pandemic to set aside concerns about climate and focus on the immediate crisis of Covid. In fact in the financial sector the momentum has continued to build and that is because finance comes down to a calibration of risk as well as a calibration of opportunity and what we have seen in the very clear message that is being sent by mother Earth in relation to floods, unprecedented temperature rises, catastrophic natural disasters as a consequence of temperatures rising; is that if you misread the climatic risks, then you are not going to get access to capital in the future, you are not going to get insurance in the future and you are going to have to undertake stress tests on your business to establish that you are a resilient business. Those conversations are being led by the insurance industry, by central banks, by the capital markets so if you like the understanding of risks that is fundamental to the capital markets, is a very powerful instrument of change in the corporate sector because your access to capital in the future is going to be based not only on whether your business is resilient but whether your business is transitioning effectively to that net zero future. And the premium, the cost of capital is simply going to be higher if when investors consider your business model, they judge that their risk of holding a stranded asset that is going to be left behind by the transition that is underway.

Matthew:

Whether this is the full reason or not, it underscores the absolute centrality of data to how business must approach the climate crisis. For businesses to act, they need first to understand exactly what their climate impact is. That might sound trivial but is in fact a really complex problem.

Michael:

The power of information and the amount of information about the impact on environment is increasing all the time but is undoubtedly the case that compared to other classic performance metrics such as profit and other financial metrics that corporates are measured against, the range and variety of information that exists as to climate impact, is much more varied and disparate. I think the last time I had a conversation one could argue there were over 2,000 different ways of measuring climate impact and my direct societal impact which is a source of huge confusion. That said, there is a lot of really useful initiatives that are really accelerating now like the Task Force For Climate Related Financial Disclosures and other similar initiatives which are making a huge difference in bringing together better, more complete information on which boards and their stakeholders can make decisions.

What they can do to do it better? A number of things. I think the first thing is to invest in the systems and processes to gather that information and to set clear and measurable targets that are realistic. There are some great examples of the publication of clear attainable targets all aligned to the ultimate net zero challenge that have really driven great corporate behaviour so transparency and measurement are at the heart of it combined with an action plan that is clear and deliverable.

Matthew:

What, you might ask, should be the role of senior in house lawyers in all of this? Isn’t this just a job for chief executives, or for sustainability officers?

Michael says it shouldn’t be, and that lawyers are uniquely placed to drive change. Not only are the main public policy tools in the area likely to be regulations, which legal functions will have to grapple with, but the whole area, he says, plays to lawyers’ particular skills.

Michael:

The climate emergency represents the greatest risk to society and to business that we have seen in our generation and is probably the defining characteristic of our generation. The role of a lawyer particularly in this environment is to ensure that the board of an organisation properly assesses and understands risks that their organisation is facing. I think it is a great responsibility and a great opportunity for general counsel and lawyers generally to have that level of influence and to help their business and organisation transition. It is likely that the risks identified as a result of the signs and climate change are going to emerge more quickly than one could have anticipated a few years ago rather than more slowly and lawyers are good at identifying and analysing risks and their emergency. They are not always glass full people, and in this scenario they may be right, but they are attuned to the key point about being able to put themselves in the shoes of the corporate and answer that question: if I were you, I would do the following.

Douglas agrees about the role of lawyers.

Douglas:

I think general counsel have an absolutely fundamental role in this process and the role of the General Counsel and advising boards on these issues is only going to grow in the years ahead so firstly I think it is important for General Counsel to understand what is happening in Glasgow and its significance, both for the broader economy and for the individual business. Secondly, there is going to be a big move in Glasgow towards an approach to individual businesses doing the right thing by a combination of transparency and transition. We are going to see in the years ahead a huge growth in the transparency with which businesses need to review their environmental externalities, what impact their business processes, their supply chains have on the environment and in that sense businesses' understanding how they need to be more transparent in the future, is going to be a key part of the bread and butter of every general counsel's work in the future.

Matthew:

Over the next two weeks countries will lay out their plans and horse trade one concession for another as climate commitments rack up and scientists furiously calculate how close each new commitment gets us to that one and a half degree target. Just as importantly, poorer countries or those more exposed to climate risk will hold richer countries to account for the funding promises made six years ago in Paris and not yet acted on.

But still, at the fringes, some will debate the reality of climate change. Though it really feels as though climate denial is becoming a fringe pursuit, it is important to remember how much effort continues to go into the modelling that tells us just how bad things will get if we don’t change our ways.

This is Tamsin’s specialism, and she explains how testing models on historical data is at the heart of it, and how our futures depend on analysis of fossilised pollen.

Tasmsin:

Obviously, we have to be able to test our models with data. You have to go back and actually simulate the historical period, say from 1850 up to today and also many other periods of the past that we have got some reconstructions sort of indirectly of what the climate looked like as well. So things like digging up fossilised pollen from the mud at the bottom of lakes gives us an idea of what the climate was like at that time, we have the ice core records when we drilled down into things like the ice sheets and we can measure not only the real atmospheric gases trapped in the bubbles but also we can again indirectly look at the chemistry of the ice and get some idea of the temperature changes over the different ice age cycles of the last half a million to a million years.

We have got imperfect incomplete data of course and we can use that if we want as well to sort of rule out less good versions of a model; there is a huge amount of work done on exactly that. Sometimes you hear stories of things like, things are worse than the models predicted, people worrying about that and of course sometimes we heard people say, climate scientists are over‑egging it and over predicting change and actually in general, they have been pretty bang on; models are kind of too sensitive in one sphere and under-sensitive in the other poll so it does depend a little bit which thing you are looking at but in general they have been pretty bang on especially in global temperatures.

Matthew:

What happens in Glasgow in the coming days will affect all our futures, and US climate envoy John Kerry has called it the humanity’s last best chance to take serious action. Tamsin can’t predict the outcome, but she knows that we are living through a critical moment in our response to possibly the biggest challenge of our generation.

Tamsin:

We need to be looking for more and more countries actually upgrading their ambitions, their NDCs and existing countries increasing their ambition and those have to be not just targets for the year 2050, they have to be for 2030, they have to be maybe even year on year; between now and 2030 and every time those countries update their pledges and we look, we can see what implications that has for bringing down that temperature that is predicted; ticking it down from 2.4, 2.3, 2.2.

And it has to be this year because it was always meant to be a major point, every five years to have a big increase in ambition for the NDCs so if it is not now, then when. It has to be now because otherwise it is only going to get more difficult.

Matthew:

Thanks for joining us for the latest Brain Food for General Counsel podcast. Remember you can keep up to date with hour by hour coverage of business law news by the Outlaw reporting team at pinsentmasons.com. Do not forget to subscribe to us wherever you get your poswswdcast, and if you have enjoyed this or past programmes please do rate and review them, it helps us to reach other people who might be interested. Until next time, goodbye.

Brain Food for General Counsel was produced and presented by Matthew Magee for Pinsent Masons, the purpose-led international profession services firm with law at its core.