Dentons: Top 5 considerations for COP28

The UN Environment Programme’s annual Emissions Gap report for 2023, which provides regular updates on the progress of the national climate targets and climate policies against what is needed to keep warming below 1.5C to 2C, has yet again found that global ambition is not high enough. This report is released against the backdrop of a worsening climate impact, in which humanity is breaking all the wrong records when it comes to climate change.

Even the most optimistic scenario (countries achieving all their targets and pledges) still has just a 14 percent chance of keeping warming below 1.5C. On current policies, there is a two third chance global warming will peak at or below 3C, falling well short of the Paris Agreement.

The timing of the Emissions Gap report makes available crucial information just ahead of the conference of the parties for the UN Framework Convention on Climate Change (COP28) in Dubai, which commences on November 30. We are likely to see serious discussions at this conference about the next round of Paris targets, covering 2031-2035.

The top 5 considerations for COP28 are:

1. Litigation risk looms should COP28 fail to respond to the first global stock take and make meaningful progress to achieve the Paris Agreement goals. Litigation risk will weigh heavy on organisations not following a transparent, proactive decarbonisation process. This legal risk is driven by societal expectations - for example, investors will continue to challenge companies’ decarbonisation and climate adaptation strategies.
   
   
2. Rating agencies are watching organisations’ exposure to voluntary carbon market weakness. A climate controversy that ought to be considered at COP28, but likely won’t be, is the robustness of the voluntary carbon offset markets. Without government progress on this issue or a more harmonised global carbon credit authentication, organisations will need to proactively manage the risk created through undeliverable net zero claims and voluntary market weaknesses. This issue is relevant to New Zealand as Toitū, a New Zealand carbon certifier, has just announced that it will no longer accept NZ voluntary carbon market credits as part of its programme, due to their lack of alignment with global standards.
   
   
3. Supply chain pressure mounts due to the impact of CSRD (Corporate Sustainability Reporting Directive) and other Green Deal regulations. Although COP28 will make slow progress, this pressure is driven by European based organisations who must meet these compliance obligations. New Zealand may be impacted by this through the upcoming Free Trade Agreement with the EU, which the European Parliament has just ratified.
   
4. Stranded assets and spikey transitions on the horizon. As governments and businesses remain slow to act, the risk of stranded assets becomes ever more acute. This will be felt through the rising costs of external finance, a reducing pool of investors and the possibility of a declining customer base. In the absence of a measured and managed transition though an effective COP28, countries will endure a spiky, rather than an orderly, transition. Questions will be asked about whether we could have seen this coming.
   
   
5. Double-materially: the new barometer for organisations. ‘Double-materially’ embodies the fact that when you value a deal or invest in a project you will want to know of both its impact on GHG emissions and the effect of climate change on that asset or project. Companies will need to do their due diligence.