All eyes were on Marrakesh in November to see if the momentum from the United Nations Framework Convention on Climate Change Conference of the Parties (COP) in Paris the previous year, better known COP21, would lead to more significant action on climate change at an international level.
The Paris Agreement catalysed a host of policy and finance-related decisions in 2016, though the degree to which change will come about as a result remains to be seen. Though the results of the US presidential elections cast a shadow over the future of climate action, the private sector and other countries have exhibited a willingness to step up and continue financing and regulating for sustainability.
1. COP22: Slow progress
Expectations were high at the COP22 conference in Marrakesh. The Paris Agreement had just come into force at breakneck speed and the world was waiting to see if that historic treaty would translate into action.
The results were disappointing. One key issue to be addressed in Marrakesh was hammering out a system to keep track of how countries were faring in meeting their carbon reduction targets. But progress was slow and achievements were minimal.
Delegates could not agree on how to finance climate mitigation for poorer countries. Specifically, they were unable to agree if financial aid to help poorer countries deal with the impacts of climate change should be funnelled through the Adaptation Fund, which set up under the Kyoto Protocol in 2001 to help countries build climate resistance, or via other means.
Still, some progress was made. More countries signed the Paris Agreement. At the time of publishing, 114 countries have ratified the treaty, representing 79% of global emissions. Some countries committed to carbon neutrality by 2050.
But what was expected to be an “action COP” effectively turned into a “Trump COP” as the results of the US presidential elections hijacked headspace in Marrakesh. President-elect Donald Trump has described climate change as a hoax, and pledged on the election campaign trail to withdraw the United States from the Paris Agreement and stop contributing to the UN Green Climate Fund.
Activists and officials at COP22 vowed not to let Trump’s win derail global efforts on climate change, but that sentiment did not transform into progress on policy.
Opinions are still divided over how much of an obstacle to sustainability Trump will prove during his presidency given the country’s economic and political influence. But even as he stocks his cabinet with fossil fuel-friendly chieftains, the rest of the world is not looking back, with China and Europe leading the way on climate policy.
2. Shipping and aviation get on board
Traditionally excluded from the international negotiations on climate change such as COP, the shipping and aviation sectors have had a landmark year and pledged to clean up their industries in line with ongoing international efforts to keep global warming below 2 degrees Celsius as agreed under the Paris Agreement.
Aviation had its “Paris moment” at a meeting held by UN agency the International Civil Aviation Organization (ICAO) in Montreal. There, the decision to keep net aviation emissions at 2020 levels was made. Beginning in 2021, airlines that generate emissions above 2020 levels must offset them via an industry carbon credit scheme that will be phased in over the course of the next seven years.
Given that the next chance to strike an emissions-reduction deal would not have come until 2019, at the next ICAO meeting, and that aviation, though only accountable for 2 per cent of carbon emissions globally is one of the fastest-growing sources of emissions, the deal has been hailed an historic first step.
The UN’s International Maritime Organization (IMO) was similarly able to push through some important policies this year. One was a sulphur cap on marine fuels. Ships must switch to marine fuels that contain a maximum of 0.5 per cent sulphur by 2020, and the new regulation fulfils a 2008 industry agreement to implement the cap by 2020. The sulphur content in fuels used today can range up to 3.5 per cent, and the move to a 0.5 per cent limit could reduce sulphur dioxide emissions by up to 85 per cent compared to today’s levels.
Shipping is the biggest producer of sulphur dioxide emissions globally. A China-led study has found that sulphur dioxide and other pollutants generated by the industry causes up to 24,000 premature deaths a year in East Asia alone through heart and lung disease or cancer.
For all the progress made, green groups have criticised the IMO for failing to develop new regulations for carbon emissions. Shipping is a fast-growing source of emissions with analysts predicting that it will be responsible for 17 per cent of global emissons by 2050. Members instead agreed to continue monitoring carbon emissions and put together a plan of action. The plan is unlikely to take effect before 2023.
3. Green finance gains momentum
The world of green finance came into its own in 2016, with a number of milestones reached for what is still a young sector.
China has been the main driver of growth in green bonds. According to financial market data provider Dealogic, the country accounts for the lion’s share of green bond issuance, with 42.7 per cent of the US$76.3 billion of green bonds issued between January and November, a value of US$32.6 billion. To put that into perspective, China only issued US$610 million and US$1.3 billion in green bonds in 2014 and 2015, respectively.
Credit rating agencies are also taking action. A new ratings system for green bonds was unveiled by Moody’s in March, while Standard & Poor’s has said it will launch two new tools soon. One is to assess the environmental impact of green bond projects. The other, to gauge the non-financial impact of companies.
Asia’s first climate bond and the first-ever climate bond for a single project in an emerging country was issued in March this year, backed by the Asian Development Bank (ADB). The 10.7 billion peso bond (US$225.61 million) is for AP Renewables Inc, a subsidiary of power developer AboitizPower Corporation, for its geothermal energy plant and has been certified by the Climate Bonds Initiative, a non-profit organisation working to mobilise the bond market against climate change.
In Europe, the Luxembourg Stock Exchange launched the Luxembourg Green Exchange, a platform for green financial instruments that will channel 100 per cent of funding raised for green investments. Only issuers who meet stringent criteria will be granted access to the platform. Its first sovereign green bond, issued by Poland and worth 750 million euros, was listed this month.
4. Bill’s breakthrough energy venture
In a demonstration of how business can be a force for good, the world’s richest businessmen and investors came together to create a fund to finance the development of clean energy to the tune of US$1 billion.
Spearheaded by serial philanthropist and billionaire investor Bill Gates, the Breakthrough Energy Ventures fund will invest in “scientific breakthroughs that have the potential to deliver cheap and reliable clean energy to the world”, said Gates in a post on his blog Gatesnotes.
Other investors backing the fund include Alibaba founder Jack Ma, Amazon.com CEO Jeff Bezos and Bloomberg LP founder and former New York City mayor Michael Bloomberg.
The fund comes under the Breakthrough Energy Coalition, which debuted at COP21 in Paris last year. It is designed to encourage rich business leaders and institutional investors from around the world to embrace sustainable energy. The Coalition highlighted electricity, buildings, manufacturing, transportation and food as the five biggest sources of greenhouse gas emissions.
The Coalition is partnering Mission Innovation, an initiative that brings together over 20 countries and the European Union, to accelerate investment in clean energy, and is also looking to forge more public-private partnerships.
5. Sustainability reporting gets a leg up
The year has been a boon for sustainability reporting, with a growing number of private companies choosing to disclose their environmental and social impact in their financial reports.
Non-profit organisation Global Reporting Initiatives (GRI) has unveiled the world’s first set of global standards that offer companies a “common language” for sustainability reporting. The GRI Standards build on the GRI G4 Guidelines that are the most widely used framework for sustainability. The shift to a global reporting framework signalled a change in attitude towards non-financial disclosures.
Established in December 2015 by the Financial Stability Board (FSB), a group set up by the G20 to monitor risks to the financial system, the Task Force on Climate-related Financial Disclosures has published its own set of recommendations to help companies disclose climate-related risks in their financial reports. The launch also marks the start of a 60-day public consultation period to gather feedback on the recommendations.
FSB Chair and Bank of England governor Mark Carney said: “The disclosure recommendations will give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change”.
The national stock exchange of Singapore has made it mandatory for all listed companies to do sustainability reporting on a comply-or-explain basis starting from financial year 2017 through a new set of guidelines.
The Singapore Exchange (SGX) began public consultations for its sustainability reporting guidelines in January this year, and in May launched its first-ever sustainability indices. The indices highlight listed companies that meet sustainability reporting requirements and have an exemplary environmental, social and governance track record.
With the latest move, the city-state joins its Asian neighbours including Malaysia, Thailand and Hong Kong that have made non-financial disclosures mandatory. Although the SGX has used a voluntary sustainability reporting regime since 2011, a study found that only 160 of 537 mainboard-listed companies were doing so.
This story is part of our Year in Review series, which looks at the top stories that shaped the business and sustainability scene in each of our 12 categories.