As the dust settles on COP26, our Adamantine team has looked at the post-convention announcements and what they mean for oil and gas. In this second edition of What to Watch for in 2022, we look past the “much ado about nothing” headlines to see how COP26’s ripples might affect your future policy and public opinion risks.
From the absurd to the relevant, here’s what game-changing leaders need to know.
Both of these things are true:
- Most audiences took out of COP whatever they wanted to see, whether it was insufficient urgency, lack of public will, or meaningful commitments — all valid assessments.
- COP26 marked a way station on the slow, inexorable march of markets, policy, and public opinion toward a greater focus on climate action.
COP was most notably marked by announcements of disparate alliances and coalitions working together to harness climate action momentum and drive further action. Let’s separate the substantive from the hand-wavy:
- The Opportunity: First Movers Coalition. The First Movers Coalition launched at COP26 with member companies making purchasing commitments to jump-start demand for technologies required to reach net zero. This pragmatic collaboration acknowledges that half of the new technologies required to meet net zero do not yet exist. Set up as a public-private partnership between the US State Department and the World Economic Forum, the Coalition has identified science-driven pathways requiring these technology purchase demand signals. The Coalition includes big-name companies from Airbus to Volvo in aviation, tech, trucking, shipping, and steel. These companies are committing to emissions targets and future purchasing commitments. Although the coalition doesn’t currently include any oil and gas companies, the group is taking new members.
- The Absurd: Beyond Oil and Gas Alliance. Costa Rica and Denmark created the Beyond Oil and Gas Alliance to phase out oil and gas supply. Core members commit to ending leasing and licensing and include oil-and-gas hot spots (*awkward cough*) France, Greenland, Ireland, Quebec, Sweden, and Wales. Associate members are taking concrete steps to reduce oil and gas production and include California, New Zealand, and Portugal. Critics noted that the core members, associates, and friends account for just 0.8 percent of global oil production.
- The Immediately Relevant: Global Methane Pledge. Over 100 countries (including the U.S. and those in the European Union) committed to “a collective goal of reducing global methane emissions by at least 30 percent from 2020 levels by 2030” through the Global Methane Pledge. As part of this effort, the U.S. and E.U. promised significant financial and technical support to other countries, supplemented by $328M of private philanthropic support.
- The Hypocritical: Ending financing for fossil projects. The U.S., Canada, and 18 other countries pledged to stop financing for “unabated” oil, gas, and coal projects abroad by the end of 2022. While broadly celebrated as historic, the effort set no such limits for domestic projects. This resulted in swift critiques of developed-world hypocrisy, such as this excellent piece by the Breakthrough Institute, “The Rich World — Not Sub-Saharan Africa — Needs to Lead on Decarbonization.”
- The Longer-term Relevant: Glasgow Financial Alliance for Net Zero (GFANZ). Four hundred and fifty firms from 45 countries committed over $130 trillion of private capital toward an economy-wide net zero transformation in the Glasgow Financial Alliance for Net Zero. This is the Mark Carney effort you may have read about in the WSJ leading up to Glasgow. Made up of financiers, such as banks, insurance providers, pension funds, asset managers, and export credit agencies, GFANZ organizations are committed to aligning their portfolios with a 1.5-degree Celsius ambition. This effort is one of 25 initiatives led by Carney with financial institutions as part of COP26. Along with the GFANZ announcement, the IFRS Foundation — the international accounting standard body — announced the establishment of a new International Sustainability Standards Board to develop global climate disclosure standards for financial markets. We expect these efforts to trickle through financing institutions and come ultimately to a lender or investor near you.
- The Powerfully Pragmatic: The Mission Possible Partnership also made some announcements at COP26. This group is bringing together leaders from carbon-intensive industries to focus on action in seven hard-to-decarbonize sectors. Funders include Bloomberg, Gates, and Bezos philanthropic arms. Partners include companies, the financial sector, environmental non-governmental organizations, and international public sector partners.
Seize the day
It’s tempting to cherry-pick the assessment of COP that aligns with our wishes for its outcomes. Game-changing oil and gas leaders instead recognize that — from the absurd to the immediately relevant — these COP26 developments do and will influence the social risk that oil and gas companies face. Here’s how to stay apprised of these developments:
- Read the news you don’t want to. It’s easy — and perhaps even habitual — to skip the climate news we don’t want to read. Yet to understand how significant and inexorable climate pressure is in the public psyche, we must stay attuned to climate-activism developments.
- Talk to your stakeholders, from employees to customers to investors. The next steps for climate action are mysterious to most stakeholder groups. As the reality of “get off of fossil fuels” begins to be understood, your stakeholders will seek solutions from leaders they trust. Gather their input as you develop your leadership strategy.
- Build climate pressure into your operational strategy. How COP26 announcements will precisely play out in business is just coming into focus. What is not mysterious: External pressure to address climate will continue to drive social risk for oil and gas companies throughout the value chain. These risk factors are no longer tangential to your operational strategy but should be considered at every level of risk and strategic planning.
Wondering how to analyze what these evolving expectations will mean for you? I’m taking on a limited number of executive advisory clients in 2022. In these engagements, we meet periodically to explore your thinking on risk and opportunities that affect your operational, decarbonization, and ESG strategy. Reach out if you’d like a thought partner in 2022.
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