How the Paris climate agreement came about and what it means for business

From red lines and compromises to new models.

In the grand tradition of the 20 preceding COPs (Conference of Parties), it was delayed. But when the final draft agreement text came at 13:30 CET on Saturday, December 12, there was little else that felt like this was just another climate conference concluding. The agreement was almost universally heralded as a historic agreement that will fundamentally safeguard the planet for future generations. So, what comes next?

The clear, unequivocal signal that changes financial markets and opens opportunities.
Campaign groups and think tanks alike celebrated the agreement for the clear signals it gives global markets to catalyse innovation for alternative growth models.

Anthony Hobley, CEO of the Carbon Tracker Initiative, heralded how the agreement will be a catalyst for new models of growth, and not economic contraction.

"The need for financial markets to fund the clean energy transition creates opportunity for growth on a scale not seen since the industrial revolution," he said. "International financiers stand ready to unlock trillions of dollars to accelerate the transition to a low-carbon world… and they are well aware of the risks to financial markets of failing to achieve an orderly transition"

Nigel Topping of the We Mean Business coalition said the global economy was "on the cusp of an historic turning point.

"This deal is good for the planet, good for sustainable development, and good for business," he commented, adding it would "unlock trillions in green infrastructure."

Edward Cameron of BSR called it "a catalytic signal to businesses and investors that the era of high carbon growth is over and a transition to low carbon economy is well underway."

New coalitions away from the binary developed/developing model
The second week of the climate talks saw the surprise emergence of the Coalition of High-Ambition grouping of more than 100 countries. Convened by Marshall Islands Foreign Minister Tony de Brum and Giza Gaspar Martins from the bloc of Least Developed Countries, it was this bloc that initiated the demand of five-year review mechanisms for each country that a number of major emerging economies including India had opposed.

Brazil joining the High Ambition Coalition on the final Friday of the talks was the tipping point that made progress on the remaining sticking points under discussion. But what gave the coalition credibility was that foremost in the representation were the most vulnerable, least developed members with most to lose from a failed summit.

This spirit of cross-boundary collaboration must remain in the hard work that must come ahead in implementation. It’s likely that the sticking point of culpability and assigning responsibility for loss-and-damages payments to vulnerable countries will raise its head again, but Paris has underlined that progress happens when different actors come together on the commonalities and work together to find solutions on the differences.

In this theme, MSLGroup has been privileged to support Make It Work, a short film documenting how 200 students from around the world came together to completely rethink climate-change negotiations by introducing non-state actors such as cities, oceans and the soil.

Culpability to responsibility – new concepts of responsibility and ownership
A key success story, and the most defining difference of the Paris Agreement versus the Kyoto Protocol has been the concept of differentiation in responsibility. Recognizing that each country has unique circumstances and capabilities, and therefore is responsible for setting their own contributions in the form of the bureaucratically named Intended Nationally Determined Contributions (INDCs).

Whilst the INDCs are not yet sufficient to stay within a 2°c temperature increase, let alone the 1.5°c target, the five-year review mechanism commits countries to moving to within sight of the target before it is too late.

It will be interesting to see how the implications of these review cycles for business. If governments face civil society pressure to report on progress against ambitions, this could entail stronger regulation for business – including greater disclosure requirements, stricter emissions standards, and changing tax and incentive policies.

Over to the accountants to define climate finance
Another key component of the deal is settling on the figure of $100 billion-a-year in climate finance by 2020 to help developing economies in the transition towards climate-resilient development. Never formally defined, now post-Paris the next steps will be about properly outlining exactly what climate finance entails.

This is where business is more explicitly referenced and has a strong opportunity to play a role in mobilizing finance and investment flows. Dirk Forrister, chief executive of emissions trading organisation IETA noted that the text contains "strong accounting principles to ensure market integrity… [which] could unleash new investment flows and drive innovation."

What’s left and what does it mean?
As the negotiations developed, the tone of the agreement became increasingly grounded in science and economics. Climate impacts on human rights and gender justice were stripped out despite nations such as Mexico initially demanding their incorporation. Over time, this may build a stronger case for the sustainable development goals (SDGs), which are more explicit about the implications of climate change on gender equality and human rights.

Some loose ends remain also on how fossil fuels will be phased out over the next century. Nations are encouraged to reach "peak fossil fuel emissions" as soon as possible, but without a timescale, the timing of this depends on not just the development and scaling of alternative technologies, but unpredictable market forces recognizing the financial risk of fossil fuel assets and moving capital away to accelerate that peak use.

Now more than ever do investors need transparent, comparable, and consistent information on climate risk. It remains to be seen whether carbon or greenhouse gas accounting mechanisms will emerge to fill the information gap, or if this will stimulate the already increasing adoption of integrated financial and non-financial corporate reporting. But the Paris Agreement highlights a very clear path to take, and as ever, the movement of money will be instrumental in ensuring the steps are followed.

The outcomes of Paris were in many respects surprising, and more than many of us dared to hope for. The triumph belonged to diplomats, but it stemmed from the convergence of an anxious and creative civil society, an expectant and ready business sector, and a collective willingness to break down the old dividing lines for the sake of our common future.

Caroline Carson is the corporate and brand citizenship practice lead for Europe, the Middle East, and Africa at Salterbaxter MSLGroup, based in London.

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