COP26 Explained – Sustainability Financing Regulation

UK Investment firms are facing increasing pressures from investors, politicians, and regulators to integrate ESG and sustainability factors into practice…

These pressures will no doubt increase further after the Head of State, climate experts and campaigners congregate at the United Nations Climate Change Conference (UNFCCC). The 26th Conference of the Parties (COP26) covers the dates 1st through to 12th November – representing over 195 countries tied to the United Nations framework. The conference objective is for parties to agree on how to meet the current climate change laws, in line with creating a greener future.

There are 4 primary objectives of the conference...

1) Emission Reduction

For countries to meet targets of generating an average temperature rise within 1.5 degrees and secure a net value of zero by 2050, they must implement emission restrictions. This can be achieved, for instance, by putting more resources towards mass introductions of electric vehicle use etc. 

The UK has already pledged to cut emissions by 78% by 2035, along with other developed countries making huge commitments in an effort to reduce the climate crisis by mobilising finance and supporting people most vulnerable to the impacts of our changing climate. 

2) Ecosystem Restoration

Next up in the 26th Conference of the Parties is for countries to settle on policies, innovation strategies and finance investments in response to the negative impacts of climate change…

Currently, only 3% of global finance is spent on protecting nature. In order for countries to reach their 2050 target of net zero, they must take an active approach in restoring ecosystems. Parties can tackle this by financing flood defences, building infrastructure, implementing earlier warning systems, and managing agriculture correctly to avoid further loss of life.

The EU works closely with World Bank and UK Food System Summit – investors are urging countries to utilise these networks to avert climate damages. Regulators will impose an ‘Adaptation Communication’ to summarise each country’s efforts in protecting natural habitats. This way, ecosystems can adapt naturally and aid movement towards improved economies and societies.

3) Public/Private Financing

The final primary objective of the conference is financing…

As climate experts and campaigners congregate to discuss and avert the damage already occurring from climate change, their overarching focus will be on where finances will be sourced from and directed towards as a means to reduce further damage. How will the sufficient amount of private funding be supplied? Will it be enough to meet the sustainable goals put forward? Conclusive discussions on financing will cover 3 main concerns:

a) Plan 

Having structured and reliable plans in place is essential and will require considerable financing. Effective planning will improve early warning systems, flood defences, and will build resilient infrastructure and agriculture to avoid further loss of life, livelihoods, and natural habitats.

b) Protect 
Money needs to be provided to protect and restore natural habitats. This is a powerful way to boost resilience in an ever-changing climate, as natural storm and flood defences will form, whilst flourishing ecosystem contribute to sustainable farming and the support of billions of lives worldwide.

c) Communicate 
All 195 countries tied to the United Nations framework are required to produce their ‘Adaptation Communication’. This corroboration will make room for any added assistance needed and will encourage us to learn together and share best practice between countries.

The ESG space encompasses various different factors - regulation around sustainability financing is just one of the many objectives it currently works to achieve. Firms must react to the fast changes being made by the government as part of the EU's sustainable finance plan. Hopefully, with the correct corroboration between the government, large corporate businesses (and smaller ones too), and civil society as a whole, we can make a change. The pressure is on!