COP26: Moves to accelerate value chain decarbonisation

30th November 2021

COP26 crowd mirrored collaboration needed across the value chain to decarbonise carbon intensive sectors

The outcome of COP26 has been met with a mixed reception – but overall, despite some compromises and disappointments, many have commended it as positive progress that will help to limit warming to 1.5°C if there is concrete delivery against all commitments and pledges.

Key takeaways from the final conference statement include a commitment to reducing emissions by 45% by 2030, a phase down of coal power, carbon trading rules and a global methane pledge.

❓ Quick snapshot at what these announcements could mean for investor engagement through Climate Action 100+:

  • Fossil fuels: Whilst the phrase ‘phase out’ was watered down to ‘phase down’, codifying fossil fuels into a UN pact endorsed by 200 countries was ground-breaking. Investors engaging fossil fuel companies through Climate Action 100+ will be asking companies to explain how they are factoring this into future business plans.
  • Spotlight on 1.5°C: While the Paris Agreement spoke of “making efforts” to hold global warming to 1.5°C, the calls for 1.5°C in Glasgow were front and centre and the pledges made by countries were a big step towards keeping this goal in reach. As Climate Action 100+ now fully embraces 1.5°C, the Glasgow Climate Pact helps bolster its goals via this growing international consensus.[1]
  • Methane pledge: The pledge made by 130 countries is a potentially powerful tool to drive policies and limit the rise in average temperature to 1.5°C. This should be an important additional step to help accelerate emissions reductions, especially from the oil & gas companies covered by Climate Action 100+.

Beyond the outcome of the negotiations themselves, the make-up of the delegates present physically and joining virtually sent a clear and very positive signal about the extent of collaboration that is taking place to address climate change.

Whilst COPs are designed to bring countries together, it has not been as common to bring together huge swathes of different industries all under one roof. This year, policymakers were joined in their large numbers by the finance sector and corporates from multiple sectors.

Collaboration across these groups and more broadly across the entire value chain is critical to accelerating decarbonisation and the net zero transition. This is the central premise of the Climate Action 100+ global sector strategies workstream – that decarbonisation cannot be achieved in isolation.

We’re not going to get to net zero by just bringing down the supply of oil, gas and coal. We need the broader economy to shift demand to low carbon energy – and this requires whole sectors to transition. We therefore need to engage and decarbonise across the whole value chain.

The Climate Action 100+ global sector strategies will play an important role in helping us to understand what is required to reduce demand in heavy emitting sectors, and will support companies in decarbonising their value chains and building out effective climate transition plans.

Here we look at some key sector developments from COP26 and how the global sector strategies work from Climate Action 100+ can support and accelerate carbon intensive sector decarbonisation through identifying actions for individual companies, sectors as a whole and investors.

Energy

🌍COP26 news: A coalition of 190 countries and companies, not including India and China, agreed to phase out coal power and end support for new plants, with at least 23 countries making new commitments, including five of the top 20 coal power-using countries.

️Electric utilities: Our power utilities sector strategy, published in October, called for power companies to set a date to phase out unabated coal generation and align with a 1.5°C pathway, including an immediate halt to investments in new coal generation. In order to align with the IEA’s Net Zero by 2050 scenario, the strategy also urged companies to set a target to reach net zero in their generation business by 2040 globally and by 2035 in advanced economies, with more than 50% of decarbonisation achieved by 2030.

🤝To accelerate progress through collaboration, the strategy sets out collective actions for different stakeholders. For example, power companies could fund joint R&D projects with peers or other value chain participants to remove key technological barriers to net zero. In parallel, investor could engage with Multilateral Development Banks to accelerate clean energy investments in developing countries.

Nature and land use

🌍COP26 news: More than 100 countries, representing around 85% of the world’s forests, pledged to halt deforestation by 2030. Supported by nearly $20 billion in public and private funding, the pledge intends to reverse damage to forests and surrounding land. In addition, 45 governments committed to taking urgent action to protect nature, halting and reversing its decline by 2030 and making changes to deliver a food system that supports farmers while remaining low-carbon and deforestation free. National commitments include low carbon farming programmes and lowering emissions from land use as well as funding the implementation of measures to protect forests and support a just rural transition.

🚜Food and beverage: We published a global sector strategy, focused on the food and beverage sector, in August which outlined key expectations for food and beverage companies, including integrating incentivising and supporting agricultural producers to reduce the climate impact of crop and livestock production and enhancing agricultural carbon sequestration, and aligning capital expenditures, product development, and R&D with a 1.5C scenario.

🤝To accelerate a sector wide transition to net zero, companies are encouraged to partner with peers, suppliers and policymakers to drive transformations across the industry, including engaging supply chain actors on sourcing and energy use, increasing traceability and transparency by adopting coordinated disclosure metrics across the sector and aligning lobbying practices.

Steel

🌍COP26 news: At the World Leaders’ Summit, over 40 leaders representing more than 70% of the world’s economy, including the US, India, EU, China and developing economies, signed up to the new Breakthrough Agenda which will see countries and businesses collaborate and strengthen their action to tackle climate change. The first five goals collectively cover more than half of global emissions across key areas including power, road transport, steel, hydrogen and agriculture.

🏗️Steel: The Climate Action 100+ steel sector strategy published interventions needed to accelerate net zero steel which include the need for steel producers to set short-, mid- and long-term targets in line with the IEA NZE scenario, demonstrate the feasibility of emerging technologies such as CCS/CCUS and hydrogen based DRI-EAF and align capex with net zero, including plans to not invest in any new production capacity whose emissions cannot be abated.

🤝As curtailing steel demand is one of the most cost-efficient ways to reach net zero, the strategy recommends that steel makers collaborate with major steel customers and explore how material efficiency can be increased across the steel value chain. In parallel, as demand signals are critical for the steel industry to invest in low carbon and zero emissions technologies, the report recommends investors to encourage steel purchasers to commit publicly to buy “low carbon” and “green” steel.

Aviation

🌍COP26 news: A declaration was signed by 23 nations and states, committing signatories to jointly develop emissions reduction targets that are aligned with the Paris Agreement’s goal of limiting warming to 1.5°C. Signatories will also promote the development and deployment of sustainable aviation fuels (SAF) and of innovative new low and zero carbon aircraft technologies.

️Aviation: Our first sector strategy focused on the aviation sector and outlined key expectations of aviation and aerospace companies, including making explicit commitments to achieve net zero emissions by 2050, disclosing robust transition plans consistent with the goals of the Paris Agreement, supporting the research, development and scaling of key decarbonisation technologies and accelerating the adoption of SAF through collaborations with the upstream value chain.

Transport

🌍COP26 news: As part of Breakthrough Agenda, an agreement was reached between 30 countries to work together to make zero emissions vehicles more accessible, affordable and sustainable in all regions by 2030 or sooner. Climate Group’s RouteZero campaign brought together commitments from policymakers, auto manufacturers and other stakeholders to shift towards 100% ZEV adoption, by 2035 in leading markets and by 2040 globally.

“It’s great to see specific dates on the sales of zero emissions cars and vans, which will support investor engagement with companies. It’s wonderful that investors, companies and governments are collaborating on this really important topic.” Stephanie Pfeifer, CEO of IIGCC and current vice-chair of the global Climate Action 100+ Steering Committee, speaking at an official COP26 Presidency panel on Accelerating the ZEV Transition: A One Way Street, hosted by Nigel Topping.

🚚Trucks: Climate Action 100+ is currently developing a global sector strategy to accelerate the net zero transition in trucks.

About the Global Sector Strategies

For many sectors, particularly those considered “hard to abate”, the pathways to decarbonisation are not always clear and straightforward. In some cases, the technologies required for the transition are still in their infancy.

Investors recognise that unprecedented cross-sector collaboration is required to achieve net zero across the global economy – and that companies need the support of investors, among other stakeholders, to make these significant shifts.

Through this workstream, Climate Action 100+, its investor networks and signatories are mapping the transition for a number of key sectors, identifying priority actions for the three major stakeholders – companies, industries and investors – and tracking company implementation progress through engagement.

Sector-wide actions and dialogues with investors are a defining feature of this workstream and mark an evolution of the initiative’s engagement strategy. It is the first time that investors, through Climate Action 100+, have engaged with companies at sector level and challenged industries to collaborative action.

Read our blog to find out more about this workstream.

[1] The importance of short- and mid- term targets, with clear emission reduction targets by 2030 was seen as an urgent step needed to ensure 1.5°C during COP26 negotiations. The Climate Action 100+ Net-Zero Company Benchmark accounts for the importance of those targets and includes specific indicators to assess focus companies on this matter.