Two outcomes from COP26 have particular significance for businesses in the diversified industrial sector.
The first is the pledge contained within the Glasgow Climate Pact to switch away from coal and other fossil fuels as the source of energy and replace them with low carbon technologies.
Efforts to obtain consensus to end fossil fuel subsidies and phase out coal in its entirety failed, but parties agreed that the drive to bolster clean power generation and energy efficiency measures should involve “the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies”. The Glasgow Climate Pact is the first formal COP agreement to reference coal and fossil fuel directly in 26 years of UN climate summits. That sends a really strong market signal to companies, financiers and investors and will have caught the attention of all businesses reliant on coal and fossil fuels, which includes manufacturers.
The second initiative of note is the new declaration on zero emissions cars and vans.
More than 100 national governments, cities, states and major car companies signed the new declaration and in doing so committed to ending the sale of internal combustion engines by 2035 in leading markets, and by 2040 worldwide. A number of countries also committed to end the sale of fossil fuel-powered heavy-duty vehicles by 2040. However, some major car manufacturing economics have not signed the pledge, including Germany China, Japan and the US.
Major global original equipment manufacturers (OEMs) headquartered in India, China and the US have committed to “working towards reaching 100% zero emission new car and van sales in leading markets b 2035”. Though this does not represent a binding commitment, it was further than their respective governments were prepared to go.
What those active in the diversified industrial sector will want to know now is how governments around the world will translate their pledges into policies and action.
There were a lot of commitments during, and in the lead into, COP26 that impact on the sector – such as those set out in the UK’s net zero strategy. However, those commitments will not be enough to ‘keep 1.5°C alive’ – more is needed.
There will inevitably be increasing incentives and, perhaps more likely, disincentives introduced across the globe to persuade industrial companies and manufacturers away from products, processes and businesses that create and emit carbon, as well as other greenhouse gases. Those that are already starting to make changes are going to have to make more changes, and more quickly, and those that are slow off the mark are going to be put under a lot of financial, regulatory and public pressure to catch-up.
Life sciences
Like it has been during the pandemic, the life sciences sector will be integral in the battle against climate change.
The development and manufacture of the many lifesaving drugs and medical therapies we use today is an energy and resource intensive process. Doing so more sustainably is now one of the sector’s greatest challenges.
Emissions monitoring, and environmental stewardship more broadly, is at the core of business strategies following COP26, pharmaceuticals and the wider life sciences sector included. It is increasingly present in standards, regulations, stock exchange listing requirements, tender offer structures, investors’ due diligence and bank loan requests.