rethink sustainability

Is sustainable policy working?

Is sustainable policy working?

The market is excellent at figuring out how to do things. But when it comes to deciding what we should do, we need governments to implement the right policies to support the market in delivering positive outcomes for our society and planet.

Policy is a vital tool in the quest for net zero and the transition to a nature-positive Circular, Lean, Inclusive, Clean (CLIC™) economy. We might think of policies as decisions around what we, as a society, should do, such as the UK’s policy to phase out cars with internal combustion engines by 2030. Then, the market mechanisms of consumer and investor choice and technological innovation can get to work on figuring out how to do those things in the most cost-effective, efficient, consumer-friendly ways – in this case by producing affordable, practical, desirable electric vehicles.

So, when it comes to The Sustainability Revolution, is policy working? Let’s take a look.

We need more, increasingly ambitious net-zero commitments, backed by better laws and policies, to keep the goals of the Paris Agreement alive

Net zero

Ahead of the 2021 United Nations Climate Change Conference (COP26) and at the summit itself, 151 countries submitted new emissions reduction plans, including Australia, Canada, and the US1. These pledges were a welcome addition to existing net-zero roadmaps like those of Japan2 and the UK, which, in 2019, became the first major economy to enshrine its net-zero commitment in law3.

However, many of the pledges made at COP26, including those of significant emitters China, India, and Russia, are set to miss the 2050 target the world must hit to stand a chance of limiting global warming to 1.5°C above pre-industrial levels. Instead, if all nations meet their current commitments, we would be on track for around 1.8 – 1.9°C of warming4. But with only 66 of the net-zero pledges made at COP26 backed up by law or policy5, and the lack of credible roadmaps from several major emitters, the actual level of warming could be even higher should some countries fail to deliver on their promises6. As such, we need more, increasingly ambitious net-zero commitments, backed by better laws and policies, to keep the goals of the Paris Agreement alive.

Read also: The journey to net zero – climate risks and opportunities

Coal

With coal being one of the most significant drivers of carbon emissions, national energy policies are an essential tool in the quest for net-zero. This was acknowledged at COP26 when countries agreed to phase down the use of unabated coal – and here the trends are looking promising.

Global coal consumption reduced from 45,139 terawatt-hour equivalents (TWh) in 2014 to 42,062 TWh in 20207, while a 2021 analysis found a 76% reduction in the global pre-construction pipeline for new coal plants8. The ultimate aim, of course, is for countries to phase out coal altogether, and, last year, the UK announced that it was bringing forward its deadline for doing so by a year to October 20249.

However, the war in Ukraine has disrupted the supply of Russian natural gas, and how this will ultimately affect the phasing down of coal remains to be seen. Some countries may yet increase their use of coal power to plug the gap – a policy that could undo much of the progress we’ve made in recent years. But in Europe, at least, the sudden loss of a significant natural gas supply is strengthening the determination to reduce the use of fossil fuels.

The conflict has led to the EU Commission’s REPowerEU package, which will accelerate the transition to carbon-free energy across the bloc, frontloading the roll-out of solar and wind power, heat pumps and investment in hydrogen. And in direct response to the crisis Germany has already announced that it will scale up renewable energy and will consider delaying the closure of its remaining nuclear plants, while France’s President Macron has called for a nuclear renaissance.10

Similarly in the UK, as we await a new energy security plan, there has been an increased focus on scaling up nuclear and renewables at pace – take, for example, this recent discussion between Prime Minister Johnson and nuclear industry bosses, following which the UK government restated their commitment to both forms of carbon-free energy.

At COP26, 110 countries pledged to end deforestation and increase reforestation by 2030, a development that many experts welcomed – albeit cautiously

Deforestation

At COP26, 110 countries pledged to end deforestation and increase reforestation by 2030, a development that many experts welcomed – albeit cautiously. We have already seen the 2014 New York Declaration on Forests target a 50% reduction in deforestation by 2020, only for a 2019 study to find that the years since saw rates of forest loss increase by 41%11. Even so, this latest commitment is backed up by money in the form of the Global Forest Finance Pledge, in which the European Union and 11 other countries promised to allocate USD 12 billion for realising the potential of forests and sustainable land use. Another difference is that three of the world’s most forested countries – Russia, Brazil, and China – also joined the COP26 deforestation pledge.

To see the impact policy can have on deforestation, we need look no further than Costa Rica, which, by 1987, had lost a third to a half of the rainforests that once covered about 75% of this Central American country. Following its 1996 banning of unapproved deforestation and introduction of the Payments for Environmental Services (PES) programme – which pays landowners for environmental services resulting from sustainable land use and forest management – rainforest coverage has now returned to 60% and rising12.

Read also: The top five reasons why we need to invest in our forests now

 

Plastic

In February this year, the UN took a significant step towards more meaningful global policy for addressing plastic pollution when its negotiators signed a draft resolution titled ‘End plastic pollution: Towards an internationally legally binding instrument’. This roadmap states that the full treaty should address plastic design and production as well as waste, such as by promoting the sustainable design of plastic packaging to ensure it can be reused or recycled13.

However, as Inger Andersen, Executive Director of the United Nations Environment Programme (UNEA), points out, “We all know that an agreement will only count if it is legally binding.” As such, all eyes will be on the intergovernmental negotiating committee as they work to agree the full details of the treaty, which the UN aims to have signed in 2024.

Read also: 10 ways to rethink plastic through technology

A well-functioning carbon credit market could play an important role in closing the climate finance gap by facilitating transfers to adaptation projects in LMICs

Climate finance for developing countries

With the world failing to meet its pledge to provide USD 100 billion a year by 2020 to help developing nations cope with climate change, the international community looked to leaders to step up their efforts at COP26. In the end, several countries announced new climate finance pledges, including Japan, which promised USD 10 billion for reducing emissions in Asia over the next five years; and the US, which pledged USD 11.4 billion annually by 2024 alongside USD 3 billion for climate adaptation. It’s estimated that these new pledges will deliver USD 96 billion per year by the end of 2022, while the UK has expressed confidence that the USD 100 billion per year target will be achieved in 202314.

For many, though, these promises still fell short. “Delivering USD 100 billion by 2023 isn’t soon enough,” said the Least Developed Countries group’s Gebru Jember. “There is [also] not enough for adapting to climate change, which was promised to be 50% of the USD 100 billion.” Furthermore, the US Congress has approved just USD 1 billion in climate finance this year, leaving a significant gap to close if the country is to fulfil its COP26 pledge15. Meanwhile, just three of the 23 developed countries responsible for providing climate finance – Germany, Norway, and Sweden – are, based on the size of their economies, currently paying their fair share of climate finance16.

A well-functioning carbon credit market could play an important role in closing the climate finance gap by facilitating transfers to adaptation projects in LMICs (Low Middle Income Countries). Carbon credits, which can fund emissions avoidance, such as the build out of renewable energy capacity, or emission removals, such as planting new forests, can have sustainable development co-benefits for local communities. They can also support the achievement of nationally determined contributions (NDCs). The Integrity Council for the Voluntary Carbon Market (IC-VCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI) are taking forward work to deliver a high integrity carbon market to “reduce emissions above and beyond what would otherwise be possible and to channel finance towards climate resilient development.”

Read also: ‘Net-zero economic growth’ need not be a contradiction

COP26 re-shaped the agenda for global business – net-zero commitments, once the outlier, are now the norm

Hope for 2022?

The Glasgow Climate Pact called on all countries to revisit and strengthen their targets in 2022, so we are likely to see policy ambition ratcheting up. The EU Commission’s REPowerEU package is early evidence of this, a clear statement of intent, frontloading renewable energy and energy efficiency investment. This year may also see the launch of a new Sustainability Disclosure Standard, currently being developed by the IFRS International Sustainability Board, that could serve as the global baseline for high-quality sustainability information for investors, policymakers and the financial markets.

While we still have a lot of work to do when it comes to sustainable policy, 2022 holds a number of vital opportunities for policymakers. At the 15th UN Conference of the Parties (COP15) to Combat Desertification (UNCCD) there is hope for a Paris style agreement being struck on biodiversity, which will bring the question of food system sustainability to the fore, and highlight the links between the climate and biodiversity crises. Global carbon pricing will be high on the agenda at the 27th UN Climate Change Conference (COP27), where, according to Conference President-designate Sameh Shoukry, delegates will “set the stage and direction for global climate action in this critical decade.” COP27 will also have a particular focus on Africa, with hopes the conference will give fresh impetus to the continent’s expansion of renewable power. And 2022 saw the publication of the final stages of the Intergovernmental Panel on Climate Change’s sixth assessment report, with April’s third stage – which examined the progress made towards reducing and limiting emissions – being particularly important for policymakers working to achieve net zero.

COP26 re-shaped the agenda for global business – net-zero commitments, once the outlier, are now the norm. The number of corporates taking action to reach net zero emissions will grow further, as consumer and regulatory pressure builds. The Science Based Targets initiative (SBTi) says it is preparing for exponential growth in corporates seeking to set robust science-based targets. But the transition won’t happen in a vacuum, and laws, frameworks and policy will be increasingly important in channelling the innovation needed to achieve net-zero. With climate change and environmental degradation continuing to worsen, now, more than ever, the world is counting on policymakers to deliver meaningful progress.

 

1 Climate Watch (n.d.) ‘NDC Enhancement Tracker’.
2 Shinjiro, K. (2021) ‘Japan’s transition to become a decarbonized society’, World Economic Forum.
3 Gov.UK (2019) ‘UK becomes first major economy to pass net zero emissions law’.
4 UN Environment Programme (2021) ‘Addendum to the Emissions Gap Report 2021: A preliminary assessment of the impact of new or updated nationally determined contributions, other 2030 pledges and net-zero emissions pledges announced or submitted since the cut-off dates of the Emissions Gap Report 2021’.
5 Mehers, L. (2021) ‘Which Countries Now Have Net-Zero Targets After COP26?’, Chapter Z.
6 Mountford H., Waskow, D., Gonzalez L., et al. (2021) ‘COP26: Key Outcomes From the UN Climate Talks in Glasgow’, World Resources Institute.
7 Our World in Data (n.d.) ‘Coal Consumption’.
8 Roberts L. and Shearer C. (2021) ‘How world’s coal-power pipeline has shrunk by three-quarters’, World Economic Forum.
9 Gov.UK (2021) ‘End to coal power brought forward to October 2024’.
10 Harvey F. (2022) ‘Ukraine war prompts European reappraisal of its energy supplies’, The Guardian.
11 Mulvaney K. (2021) ‘Will the COP26 global deforestation pledge save forests?’, National Geographic.
12 Konyn C. (2021) ‘How Costa Rica Reversed Deforestation and Became an Environmental Model’, Earth.org.
13 Geddie J. and Brock J. (2022) ‘UN plastic treaty to tackle production, packaging design - draft resolution’, Reuters.
14 Morris C. (2021) ‘COP 26: How much are poor countries getting to fight climate change?’, BBC.
15 Farand, C. (2022) ‘‘Betrayal’: US approves just $1bn climate finance for developing countries in 2022’, Climate Home News.
16 Colenbrander S., Cao Y., Pettinotti, L., et al. (2021) ‘A fair share of climate finance: apportioning responsibility for the $100 billion climate finance goal’, ODI.org.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

Read more.

 

let's talk.
share.
newsletter.

Investments are subject to a variety of risks. Their value can fall as well as rise and you may get back less than what you originally invested.
For risk warnings, please click below to read more :

read more