The Glasgow Climate Pact is not just a passing trend. Though non-binding, it will soon turn into legislative initiatives and will affect businesses who are planning transactions and long-term projects or seeking financing.
A new global agreement – the Glasgow Climate Pact – was reached at the COP26 (26th United Nations Climate Change conference) summit, held in Glasgow in November 2021. The pact was less stringent than expected, since – as was widely publicised – India and China weakened attempts to end the coal power and fossil fuel subsidies. Nevertheless, it will set the agenda for action on climate change, and therefore also for business.
The Glasgow Climate Pact is not a legally binding document. Nonetheless, it is important to understand that the commitments made by countries in Glasgow will drive the domestic legal agenda for the upcoming decades, and business will be directly affected by the changing laws. In the Estonian, Latvian and Lithuanian markets, these will of course be EU-level initiatives.
Businesses planning partnerships, supply chains, or investments globally should take a forward-looking approach and bear in mind what was agreed in Glasgow – among others, the agreements to:
- phase down generation of coal power
- phase out subsidies that artificially lower the price of coal, oil and natural gas
- stop deforestation
- cut methane emissions
As firmly stressed by international experts, this is not just a temporary trend. It will not go away from the agenda, but rather turn into binding laws. Business leaders should understand and take into account the new and upcoming climate policies when structuring major transactions and establishing long-term projects.
Every financial decision should take climate change into account. Financial institutions are expected to play a significant role in the shift towards net zero, and are actively rethinking their role in the carbon transition. This implies that finance may be directed away from certain industries or that some industries will need to work more intensely to be able to get the financing needed. On the other hand, the industries and projects contributing to the achievement of the climate pact goals are more likely to be able to access financing and to receive more favourable financing conditions.
The growing focus on climate change will also mean increasing attention on supply chain management: for example, sustainability characteristics of commodity goods. Therefore, businesses should integrate the ESG aspect into their agenda in order to better adapt to existing and upcoming legislation and to ensure access to financing.
Find out more about Sorainen Environmental, Social & Governance (ESG) service here.