The COP21 Paris Agreement: A clear signal to business

The COP21 Paris Agreement:

Briefing on the outcome of COP21

The 2015 UN Climate Change Conference

A clear signal to business

December 2015

KPMG International

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COP21: what was it?21st annual UN climate talks, held in Paris, France 30 November – 2 December 2015.

Objective: to agree international action to cut global carbon emissions and address climate change.

The largest diplomatic event ever held by France.

Hosted by French President, Francois Hollandeand French Foreign Minister and COP21 President, Laurent Fabius.

Around 5,000 official delegates represented 195 countries in the negotiations.

Over 150 heads of state and government leaders attended the opening.

Some 40,000+ people from businesses, industry organizations, regional and city governments, NGOs and others gathered to monitor progress and attend side events.


UN Climate Talks: the historyComplex, difficult and sensitive negotiations.

Previous talks have not achieved universal international agreement.

COP15 in Copenhagen, 2009 failed at the last minute.

Disagreements between countries over who is responsible for climate change and who should pay to address it.

Lack of engagement from some of the largest emitters of carbon: e.g. US, China, India.

Resistance to the imposition of legally-binding carbon reduction targets.


Expectations were high for COP21, Paris 2015Increasing sense of urgency: the impacts of climate change are becoming ever more apparent.

The politics have changed – US and China have been more actively involved:

• Both announced cuts to their carbon emissions in a 2014 joint announcement;

• China to implement national carbon trading system in 2017.

More flexible approach to negotiations: countries can set their own national targets to cut carbon rather than having them imposed.

Pressure from business and society:

• Leading companies publicly calling for a strong agreement at COP21 (including 70% of KPMG’s Global Platinum clients).

• Costs of renewable energy technology falling rapidly.


COP21: an historic outcome

“The Paris Agreement” comes into force in 2020.

A clear and unequivocal signal to the private sector.

Global political intention to shift to a low carbon, and ultimately zero

carbon, future.


The Paris Agreement 2015 – Halt the rise in global temperature

Limit global warming to well below 2˚C above pre-industrial levels.

Pursue “best efforts” to limit it to only 1.5˚C.

Temperatures have already increased by 1°C.


The Paris Agreement 2015 – The world will be carbon neutral

Countries agreed to peak greenhouse gas (GHG) emissions as soon as possible.

Global carbon neutrality (zero net emissions) to be achieved between 2050 and 2100.


The Paris Agreement 2015 – All countries will set national targets to reduce carbon emissions188 have already done so.

Targets are known as Intended Nationally Determined Contributions or INDCs.

The INDCs must be strengthened over time because the current targets are insufficient to limit warming to well below 2°C.

(Existing targets will lead to warming between 2.7˚C and 3.5˚C above pre-industrial levels)

5 year cycle of global stock takes and strengthening of national targets.


The Paris Agreement 2015 – Countries will report transparently on carbon reduction

The targets themselves are not legally binding.

However, the agreement requires countries to report their progress transparently.

This in itself puts pressure on countries to deliver on their commitments.


The Paris Agreement 2015 – Richer countries will provide financial assistance for poorer countries

Developed nations will provide US$100 billion per annum by the year 2020.

Funds will help to finance green, low-carbon growth in developing nations.


The Paris Agreement 2015 – Vulnerable countries receive finance for loss and damage from climate change

Recognizes that poor countries vulnerable to climate change need financial help.

Funds required to avert and minimize losses from events

such as extreme weather.

However, no mention of liability or legal mechanism for compensation from richer nations.

(Developed nations’ fossil fuel-based economic development is seen as responsible for the bulk of global carbon emissions to date).


What does the Paris Agreement mean for business?KPMG’s predictions


The global economy will evolve to a low carbon modelTransformation of power production, transport and industrial processes within a few decades.

Regulation to drive businesses to lower their emissions, e.g. carbon taxes, emissions trading systems and energy efficiency standards.

Incentives for businesses to develop and deploy technologies such as renewable energy, electric transport and carbon capture and storage.

The global economy must evolve to one that discourages fossil fuels and encourages low-carbon innovation.


Investors to look more closely at climate-related risk and opportunityIncreasing interest in how companies build shareholder value in a changing global economy.

Investors will expect transparency about financial, environmental and social risks and opportunities.

Risks include weather impacts, regulation, changing market dynamics and stakeholder pressure.

Examples of increasing investor scrutiny include:

• Financial Stability Board’s disclosure task force on climate-related risk;

• Portfolio DecarbonisationCoalition (PDC) aims to decarbonize US$600 billion of assets under management;

• Principles for Responsible

Investment (PRIs) Montreal Carbon Pledge commits investors to measure, disclose and reduce carbon footprint of portfolios.


Investment in clean technology will grow dramatically

US$44 trillion is needed to decarbonize the global power supply (IEA).

Paris Agreement likely to significantly increase the flow of capital into clean tech innovation and deployment.

Governments will seek to leverage private sector investment.

Examples include:

• President Obama’s Mission Innovation initiative - 20 countries to double clean-tech R&D budgets;

• International Solar Alliance -120 countries to mobilize US$1 trillion to scale up solar power;

• African Renewable Energy Initiative - raising US$20 billion for large scale renewable projects in Africa.


Pressure for businesses to set 2˚C targetsThe world has now agreed to limit global warming to well below 2°C.

Businesses face increasing pressure to align their own carbon strategies and targets with 2°C.

More than 100 of the world’s leading companies have already committed to do so.


International carbon market likely to emerge

The Paris text refers to linkages between existing carbon markets.

This could be the basis for a framework to link existing national systems to form an international system of carbon pricing

More and more countries are introducing carbon pricing systems, including China (due in 2017).

International co-operation and linkage is likely over time.

An expanding international carbon pricing system will simplify the complex business challenge of working within multiple national systems.


What should business focus on in a post COP21 world? Strategy

Understand the direction of carbon reduction

policy.

Plan scenarios of regulation, penalties and

incentives.

Build an internal carbon price into business

planning and risk management.

Understand the future risks and opportunities

from regulation, changing market dynamics,

stakeholder pressure, and physical impacts.

Be prepared to communicate your strategy

clearly to investors.

Align your company’s carbon reduction strategy

with the agreed global goal of “well below” 2°C.

Explore benefits from increased investment into

clean tech.

Investigate opportunities to raise capital through

green bonds, incentives and subsidies.

Operations

Be prepared for the financial, environmental and

social impacts on the supply chain.

Consider the effects of extreme weather on

critical suppliers.

Put the right systems and processes in place to

comply with carbon reporting requirements.

Protect brand and reputation by showing what

your business is doing to reduce emissions.

Understand how national carbon reduction

commitments are likely to affect your

organization.


How KPMG member firms can helpStrategy

Help companies understand

and profit from disruptive

change in the low carbon

economy.

Identify and reduce climate-

related risk in the supply chain.

Help to minimize the costs of

carbon taxes or carbon pricing

systems worldwide.

Compliance

Help companies comply with

carbon-reduction and carbon

reporting legislation worldwide.

Reporting

Implement effective processes

and IT solutions to gather,

analyze and report carbon data.

Advise on best practice for

carbon reporting.

Provide independent third party

assurance of carbon data.

Finance

Advise on issuing green bonds.

Provide independent third party

assurance for green bonds.

Help to identify and access

green tax incentives.

KPMG thought leadership

The KPMG Survey of Corporate

Responsibility Reporting 2015.

Provides a snapshot of global

CR reporting trends and a deep-

dive into the quality of carbon

reporting among the 250

largest companies in the world

www.kpmg.com/crreporting.

http://www.kpmg.com/crreporting

http://www.kpmg.com/crreporting


For more information contact

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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The COP21 Paris Agreement: A clear signal to business

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