Chapter 2. The Evolution of ESG – PART II

 Introductory articles on emerging exposures, risk mitigation and
insurance risk transfer for clients of Omnisure.

 A compendium of introductory ESG articles on emerging exposures, risk mitigation and insurance risk
transfer for clients of Omnisure with claims examples.
Martin Birch – March 2022

Ch 2. The Evolution of ESG – PART II.

The World Leaders’ Summit knowns a COP 26 was probably the most pivotal ESG gathering of relevant parties since COP21 in Paris in 2015.  It saw discussions and negotiations on:

• mobilising finance for mitigation and adaptation measures, the global transition to clean energy, youth and public perspectives and nature and sustainable land use; and then
• adaptation, loss and damage, zero emission transport and action in cities, regions and built environment,

ultimately closing on Friday, 12 November 2021.

This is a summary of Ch 2 – PART II of the Omnisure “ESG Discussions” Foundation Document ¹ which was based on a body of work produced by lawyers Corrs Chambers Westgarth in which they  identified four goals of COP26 and the impact on industry and business generally ². It also draws on content published by Minter Ellison Lawyers other credentialed organizations relevant to ESG. You can follow relevant footnotes and hyperlinks in the Omnisure Foundation Document.

COP26 Goals

Four overarching goals were set for the course of negotiations intended to key outcomes:

• secure global net zero by mid-century and keep warming to 1.5 degrees Celsius within reach;
• adapt to protect communities and natural habitats;
• mobilise finance; and
• work together to deliver

to secure global net zero by mid-century and keep the warming to 1.5 degrees Celsius target within reach.

The first goal relates to the Paris Agreement which is an international treaty which was the product of negotiations at COP21 held in Paris in 2015 ³.

Secure global net zero by mid-century and keep 1.5 degrees Celsius within reach

At present, the world is not on track to meet the 1.5 degrees Celsius goal for a global temperature rise of 2.7 degrees Celsius by the end of the century. One of the goals of COP26 was to address this ‘mitigation gap’ through a combination of tactics which span across the various pillars of the Paris Agreement including.

• encouraging countries to strengthen and exceed their 2030 Nationally Determined Contributions (NDCs)⁴;
• ensuring targets are translated into action (by implementing mechanisms for countries to formulate and communicate long-term strategies to achieve net zero in accordance with the best available science);
• finalising outstanding elements of the “Paris Rulebook” to keep the 1.5 degree Celsius target in reach.

Adapt

The second overarching goal of COP26 is to drive action plans for adaptation to avoid such loss and damage, including by protecting and restoring ecosystems and natural habitats, building defences, warning systems and resilient infrastructure and agriculture:

• assisting nations’ most vulnerable to climate change;
• implementing and tracking progress of the Global Goal on Adaptation, a concept created under Article 7 of the Paris Agreement to broadly enhance adaptive capacity, strengthen resilience and reduce vulnerability to climate change; and
• developing National Adaptation Plans and Adaptation Communications – being nation-specific plans and summaries of what nations are currently doing and planning to do, to adapt to climate change.

Mobilise finance

The third goal of COP26 recognises that funding is required. Finance must be mobilized in order for countries to manage the impacts of climate change and propel the transition to a climate-resilient future.

In Australia The National Greenhouse and Energy Reporting (NGER) scheme, established by the National Greenhouse and Energy Reporting Act 2007 (NGER Act), is a single national framework for reporting and disseminating company information about greenhouse gas emissions, energy production, energy consumption and other information specified under NGER legislation ⁵.

Work together to deliver

The final goal of COP26 is to ensure that all goals are met by creating the ‘Paris Rulebook’ which will set out the rules and logistics required to implement the goals of the Paris Agreement. Key aspects of the Paris Rulebook required agreement on Carbon markets, Common Time Frames (CTF) and Enhanced Transparency Framework (ETF). Corrs Chambers Westgarth highlighted key Insights for the future include potential for:

• increasingly robust domestic greenhouse gas emission disclosure regimes for emitting organisations⁶.
• increasing pressure on and from financiers and investors to support the transition to a low carbon future.⁷
• additional impetus to the demand for and purchase of Australian Carbon Credit Units⁸.
• expansion of disclosure regimes into broader facets of a supply chain, which will ‘cast the net wider’ and capture businesses and industry that have otherwise not previously been subject to disclosure requirements.
• expansion of the ‘safeguard mechanism’ under Australia’s Emissions Reduction Fund scheme to require a broader range of industries to offset an exceedance of annual baseline emissions, including through the purchase of Australian Carbon Credit Units.⁹
• increasing pressure on financiers and investors to support the transition to a low carbon future (so-called “Green finance and investment”) ¹⁰.

¹ Our Foundation Document is the original full text version of “ESG Discussions – Introductory articles on emerging exposures, risk mitigation & insurance risk transfer” for clients of Omnisure compiled by Martin Birch. Register on Omnisure Insurance Brokers website for a full copy.
² Climate change and the four goals of COP26: what it all means for industry and business. 05 November 2021. https://www.corrs.com.au/insights/climate-change-and-the-four-goals-of-cop26-what-it-all-means-for-industry-and-business. Accessed 15 December 2021.
³ In addition to the 1.5 degree Celsius target, the Paris Agreement contains a series of strategies for reducing and limiting the impacts of climate change including the Nationally Determined Contributions (NDCs), provision for possible emissions trading mechanisms, as well as financing for transition in developing nations.
⁴ Parties to the Paris Agreement were required under Article 4 to make a pledge known as an NDC indicating that party’s national climate action plan and how it intended to achieve the NDC.  In 2015/16, Australia made its NDC pledge to reduce greenhouse gas emissions by COP26 to 28% below 2005 levels by 2030..
⁵ http://www.cleanenergyregulator.gov.au/ERF/Pages/default.aspx
⁶ Changes to the Enhanced Transparency Framework (ETF) at COP26 are likely to result in increasingly robust domestic greenhouse gas emission disclosure regimes for emitting organisations, for example, via amendments to the National Greenhouse and Energy Reporting Act 2007 (Cth). Disclosure regimes may begin to extend into broader facets of a supply chain. This will cast the net wider to capture businesses and industry that have otherwise not previously been subject to disclosure requirements.
⁷ There will likely be increasing pressure on and from financiers and investors to support the transition to a low carbon future. For example, the Glasgow Financial Alliance for Net Zero has been launched by the COP Presidency, the UN High Level Climate Champions and Mark Carney. The Alliance brings together over 160 firms responsible for over US$70 trillion in assets to drive net zero initiatives backed by science-based guidelines across the financial system.
⁸ There could be an expansion of the ‘safeguard mechanism’ under Australia’s Emissions Reduction Fund scheme to require a broader range of industries to offset an exceedance of annual baseline emissions, including through the purchase of Australian Carbon Credit Units.
⁹ http://www.cleanenergyregulator.gov.au/NGER/About-the-National-Greenhouse-and-Energy-Reporting-scheme
¹⁰ For example, the Glasgow Financial Alliance for Net Zero has been launched by the COP Presidency, the UN High Level Climate Champions and Mark Carney.

Please contact Martin Birch for a copy of the full-text Foundation Document at martin.birch@omnisure.com.au