How COP28 Targets Will Impact Boardrooms in 2024
On 14 March the VAB Energy Expert Network, led by its chair and VAB member Chris Gerber, invited Hassan Zaheer to speak with our community about the impacts of the COP28 protocols adopted in Dubai in November 2023. Global businesses and boards of director members within the VAB ambit attended and participated in this exclusive event.
Hassan Zaheer, Operational Director of PTR, one of the significant privately owned consulting firms with a Fortune 100 client base and a fellow VAB member based in Dubai, attended COP 28 and shared his experience and takeaways. PTR followed and reported on the Climate Conferences in preceding years and was ideally placed to reflect and summarise the growing importance of COP over past decades. The first agreement in Kyoto (COP3) in 1997 set the first legally binding emissions targets and a rough plan on how developed countries could support less-developed ones in this transition. The subsequent conferences and climate change protocols and agreements concluded in Copenhagen, Glasgow, and Paris set the stage for global CO2 reduction targets and ensure clarity on the end objectives (and time frames), which have resulted in a significant commitment by all attending governments to implement action plans and create the legal framework required to not only limit CO2 emissions, but also deliver a financial framework to facilitate energy transition.
As stakeholders completed the COP28 summit discussions, there were several novel agreements concluded, including:
a) plans to move away from the use of fossil fuels by 2050,
b) 120+ countries pledged to triple their renewable energy (RES) capacity by 2030 and double energy efficiency for RES at the same time – including commitments from the USA and the UAE to phase out coal-powered power generation plants,
c) the UAE and Saudi Arabia proposed an Oil & Gas Decarbonisation Charter, while
d) 155 countries agreed to cut methane emissions by 30% by 2030 with 1 billion USD earmarked for grant funding to support this effort.
Dubai COP28 was the first such meeting to include discussions on Sustainable Agriculture and Resilient Food Systems, with agro-focused NDCs to be established by 2025. Some 700 billion USD to be yearly earmarked to finance and reduce greenhouse gases in agricultural production. The Dubai meeting also put forward plans to launch the introduction of a Loss and Damage Fund – providing some 792 million USD to assist in the energy transition in past COP goals.
What does all this mean for businesses leadership and their boards of directors?
All companies regardless of industry or location will be impacted directly or indirectly by the legislative frameworks to reduce carbon emissions. This energy transition will have a cost. It will largely be funded by the developed countries. Developing countries will be financially compensated for the shift to green energy. The energy transition required aimed at lower carbon emissions and energy consumption is currently voluntary and incentivised but there is the expectation that it will become punitive. This transition will require clear leadership particularly from Board level downwards, regardless of industry or sector. It will require a multi-facetted approach including an understanding of the legislative framework aimed at achieving carbon neutrality. This should translate into strategic plans on carbon neutrality with clear objectives and deadlines. Implementation will require regular follow up to ensure not only compliance but prevent punitive measures. Multiple transition subsidies and incentives are available, and companies will be best served to avail themselves of these incentives to curb their transition costs. According to Zaheer there are largely four key areas that boards should focus on:
1/ Use of renewable energy
Businesses will need to re-evaluate their energy usage. Globally, some 400 organisations (including those in the RE100 climate group) have already committed to doing this. They now focus on planning how to make use of renewable energy work, i.e., risk + opportunity assessments. And their boards are exploring how switching to renewable energy will impact global energy markets and subsequently cost planning for companies: what will energy prices look like, how will production shift impact job markets, etc. The key is for boards to deliver guidance and insights on advance planning for market changes and evolution.
2/ Climate targets and implementation
Again, this is a space where boards need to help businesses think upfront about what their plans for achieving Net Zero targets will be. Companies must have a long-term strategy here with boards helping consider both the cost and revenues perspectives of these changes. Businesses need to foresee important opportunities and also put in place sound reporting processes that meet government-defined regulations. Similarly, companies will have to explore other market impacts from pushing to achieve COP28 goals: will new types of talent be needed, will companies have to add in continued learning and reskilling programmes, will the HR teams need to rethink the company’s employer value proposition (EVP) to attract values-minded job candidates and more. Additionally, businesses will need to put in place sustainable procurement policies that help define long-term, viable sourcing partners and how to use COP28 targets and ESG guidelines as a competitive advantage when competing for new business.
3/ Regulatory implications
Boards can play a critical role in the space of monitoring policy changes and engaging with policy makers to understand what new regulations are in the pipeline and how they will impact businesses. This also includes working to understand how companies will be expected to contribute to National Action Plans (NAPs) and how they can access regulatory support or financial assistance for implementing transition projects. Alongside that, businesses (and their boards) will need to look at carbon pricing mechanisms (CPMs) and see when and where governments plan to put stricter regulations in place and monitor how this impacts business models. Companies must have this insight to prepare sound carbon reduction strategies.
4/ Climate finance
There are many possibilities in this area as energy transition moves forward. Boards can provide monitoring oversight and also direct their executive teams toward growth opportunities in the green economy. Businesses will have access to new investment opportunities and a broader supply of sustainable energy sources. Additionally, new areas for doing business will arise with greater interest and investment in sustainable agriculture, climate-resilient infrastructure and more. It will be incumbent upon future-thinking companies to find new ways to generate revenues from these new market segments or gain access to grant funding through connections with policy maker stakeholders. Rounding out this point is the possibility to use ESG integration as a tool for long-term business sustainability. Boards can provide review oversight on critical reporting activities and policy formulation in the ESG space. This will ensure companies’ long-term attractiveness for future-wise investors. Businesses with strong sustainability credentials and clear plans for transitioning to a low-carbon economy (low-carbon operations) will be the overall market winners in the end.