COP29: Everything Business Leaders Should Know

The United Nations climate conference in Baku comes to an end today, November 22nd. A ten-day event that has sparked a fair amount of controversy, and that even before it began did not seem to be the turning point in COP. But despite a significant drop in participation by business leaders compared to last year, COP29 also offers important opportunities for strategic discussions in boardrooms this year. It is essential that business leaders use their influence and lobbying power for a more sustainable world, especially at times when governments are taking a step back.

In fact, “although in the short term this backtracking may favor existing practices, in the long term it is in their own interest to act. Many leaders have committed to achieving net-zero emissions production by 2050. A 25-year timeframe, in terms of social transitions, is just around the corner” sais Gerben Hieminga, Senior Energy Economist, ING and Coco Zhang , ESG Research, ING, authors of the following contribution.

They continue: “Many leaders have only one or two large investment cycles to achieve this, so they need to act soon. And radical transformation – in areas such as green steel, bioplastics and sustainable fuels – is far from easy. Often these sectors are not yet competitive and require strong governments that reduce the risk-return profile of investments with targeted policies.

So, business leaders need governments to support this radical transformation. And governments need businesses to invest in the transition to a net-zero carbon economy.

Climate scientists become more pessimistic

The goal of limiting global warming to 1.5°C seems elusive, despite intensified global efforts. A recent survey of nearly 400 scientists from the IPCC (Intergovernmental Panel on Climate Change) revealed that only a minority still believe this goal is achievable. The debate now focuses on how far global warming can be limited to 2°C, the upper limit of the Paris Agreement signed at COP21 in 2015.

UNEP ’s Emissions Gap Report 2024 , released ahead of COP29, reflected similar pessimism, although the message was diluted by graphs and tables that obscured the severity of the problem.

World leaders and policy makers take a step back, even at COP29

The fight against global warming requires global coordination among governments, but progress has stalled. The geopolitical landscape, including conflicts in the Middle East and Donald Trump’s second term as president, further complicates joint action. Trump, with his pro-fossil fuel stance, could slow the transition to a carbon-neutral global economy. In addition, Azerbaijan’s significant involvement in the oil and gas sector has raised questions about the integrity and effectiveness of the conference.

The absence of key world leaders last year, such as US President Joe Biden, European Commission President Ursula von der Leyen, French President Emmanuel Macron and German Chancellor Olaf Scholz, is felt.

When governments step back, some companies take on more responsibility

In such a challenging environment, what should business leaders do? Some are choosing to take responsibility, motivated both by concerns about the state of the climate and the planetary boundaries that have been exceeded, and by a personal interest in the growing risks associated with global warming for their business activities.

Positive examples include the CEO Climate Alliance, with over 100 CEOs calling on governments and companies to commit strategically and financially to achieving net zero emissions; industry collaborations , such as 50 shipping leaders signing a call to accelerate the adoption of zero-emission fuels; and the use of media by some leaders, who used the opportunity of COP29 to include fossil fuel-producing countries in the transition. However, many leaders remain wait-and-see, or worse, indifferent to the delays in the transition.

Climate “adaptation” strategies grow in importance as “mitigation” strategies fail

If temperatures rise beyond the 1.5°C limit, climate adaptation becomes a priority for boards of directors. It will do so in two main ways: through strategy and risk management where business leaders must integrate climate adaptation into their strategies to be prepared for the impacts of climate change, and supply chain management , conceived as resilient strategies to prevent extreme weather events that can disrupt global supply chains.

Strategy and risk management

Business leaders must increasingly integrate climate adaptation into their business strategies to ensure their organizations are prepared to manage the impacts of climate change. Priorities will vary by role. CEOs will prioritize climate adaptation alongside business growth and decarbonization, integrating it into overall business strategies.

CFOs will focus on protecting the financial health of their companies and production assets against climate events. CROs will play a critical role in assessing climate risks at the regional level and across production sites. COOs and business unit heads will identify and implement business opportunities that emerge from climate adaptation. And finally, HR leaders will focus on ways to improve employee well-being and safety, such as adapting work schedules during excessive heat waves.

Supply Chain Management

A significant lesson from the Covid-19 crisis is that external events can have a profound impact on business operations. The same is true for climate events: for example, a crop failure in one region can have severe implications for food producers around the world. Therefore, climate adaptation requires a supply chain and trade perspective to ensure your business remains resilient.

Systemic Change: From “Green” to “Game Change”

Leaders must therefore think systemically about decarbonization, changing the rules of the game. The three main expectations are: collaborative action and advocacy, nature-based solutions and the carbon market.

Collaborative action and advocacy

Sustainability pioneers are increasingly realizing that they cannot achieve their net-zero emissions goals alone. Achieving things like steel, plastics, cement, or sustainable transportation requires a thriving market for green hydrogen, effective carbon capture and storage (CCS), and robust electricity grids for renewable energy. These goals can only be achieved effectively and efficiently through collaborative and coordinated action between businesses, governments, industries, financiers, NGOs, and research institutions.

Business leaders will increasingly need to use their influence beyond their own operations. They must actively promote the necessary systemic change from all actors, including governments and financial sectors. If the “rules of the game” become more sustainable, the desired outcomes will naturally follow.

Nature-based solutions

In addition to carbon emissions, companies are starting to address issues such as biodiversity loss, plastic pollution and water pollution. Interestingly, the recent UN Biodiversity Summit in Colombia saw higher attendance by business leaders than this year’s COP29 emissions summit in Baku.

Adopting nature-based solutions can align with CO2 reduction goals, creating a holistic approach to sustainability. For example, increasing groundwater levels in peatlands or farmland can reduce CO2 emissions from land use while increasing biodiversity. Addressing these complex societal issues is best when business decision makers take a systems perspective rather than thinking within the confines of their own companies.

Carbon prices

Carbon pricing is an effective and efficient tool to improve the financial viability of cleantech solutions and reduce emissions. And although an agreement on the rules for the functioning of the carbon credit market under Article 6.4 of the Paris Agreement was approved on the second day of COP29, there is still much to be done. Including the integration of local and global, voluntary and mandatory markets, for example.

The development of the framework for voluntary international carbon markets enables business leaders to integrate carbon offset strategies into their emission reduction plans. Examples already in place include the global market-based CORSIA scheme developed by the International Civil Aviation Organization (ICAO) that addresses international aviation carbon emissions through carbon credit trading, and the International Maritime Organization (IMO) framework that allows shippers to purchase carbon credits to offset emissions in long-distance shipping.

COP29, once the halfway point has passed, the imperative to act remains

While COP29 does not end with political milestones, it sets the stage for significant progress at COP30. Business leaders should not underestimate the implications, but act immediately to translate the Baku results into strategic and concrete actions.

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(Featured image by Markus Spiske via Unsplash)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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