The Paris Agreement Is On!

The Paris Agreement entered into force today.

This comes less than a year after the Conference of the Parties (COP) adopted the agreement into the United Nations Framework Convention on Climate Change (UNFCCC) during last year’s COP annual meeting — better known as COP 21 — in Paris. For the agreement to take effect, 55 members of the UN had to ratify the accord, and those countries had to account for at least 55 percent of the world’s carbon emissions.

In April, several nations approved the agreement. China and the U.S. joined in September. And the UN officially met both ‘55’ thresholds in early October with the support of the European Union (EU), and countries such as Bolivia and Canada. (If 11 months seems like a long time, consider that it took 8 years for COP to ratify the Kyoto Protocol, the predecessor to the Paris Agreement.)

So it’s on to the process of implementation. Initially, the pact requires countries to put in place plans to achieve the goal of keeping the rise in temperatures within 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the increase to 1.5 degrees or less.

For example, the U.S. has committed to reduce its greenhouse gas (GHG) emissions by at least 26 percent from 2005 levels, aiming to hit the 28-percent mark. China, the world’s biggest emitter, has committed to lower the carbon intensity of GDP by 60 to 65 percent by 2030 and increase its forest stock by 4.5 billion cubic meters, compared to 2005 levels, among other targets.

In parallel, the EU as agreed to reduce its GHG emissions by at least 40 percent. GHGs covered by the EU emissions trading system (ETS) sectors will have to fall by 43 percent while those from non-ETS sectors will have to decrease by 30 percent — both from a 2005 baseline. Even more ambitiously, by 2050, the European Union aims to cut GHG emissions by 80 to 95 percent.

The Paris accord also calls on signatories to intensify their climate-action efforts through “intended nationally determined contributions”, setting more ambitious targets every 5 years. And it stipulates that all parties report regularly on progress and emissions.

What does this mean for businesses?

The Paris deal requires countries to provide, by 2020, long-term strategies to reduce emissions through 2050. It means putting new long-term policies and tools in place, which will bring certainty for the private sector and investors, provide continuous support for renewables, and promote energy efficiency to accelerate the transition to the low-carbon economy.

That means it’s time for companies to explore new market opportunities. The national climate plans under the Paris Agreement represent at least a US$13.5 trillion market for the energy sector alone in energy efficiency and low-carbon technologies through 2030. This market will keep growing as national climate plans improve over time.

By establishing a global policy framework and bringing the attention of stakeholders and investors to the 2 degrees Celsius pathway, the agreement also increases the risks of high-carbon investments. Companies will have to demonstrate taking action for managing climate risks and disclose relevant information in order to increase investor confidence and make their operations more climate resilient.

Accelerating through the turning point.

Companies can help raise ambitions and results by committing to global leadership initiatives that are already in play, such as: relying 100 percent on electricity from renewable sources in the shortest practical timescale (RE100); setting emission targets in line with climate science (Science Based Targets initiative); and reporting climate change information in mainstream reports as a fiduciary duty (CDP and Climate Disclosure Standards Board).

The implementation of the Paris Agreement only proves that the momentum for corporate action for tackling climate change has been building up. Leading companies will pave the way, adopting strategies for managing climate risks and creating more sustainable operations. This approach will allow forward-thinking businesses to seize unlocked market opportunities, responding successfully to regulatory and policy requirements, and enjoying trust from stakeholders and shareholders.

Staying abreast of evolving legislation is a must, as is understanding and translating changes into meaningful impacts for businesses as these developments can drive long-term competitive strategic decisions. The impacts can influence both how companies operate and which opportunities they act on. And as existing regulations evolve and new legislative instruments come into developed and emerging markets, the onus is on businesses to engage with policy makers, maintain compliance and leverage these tools as catalysts for positive change.