As the world counts down less than 90 days until COP27, conversations continue to intensify on the urgent actions that global leaders can take to limit the effects of the climate crisis. One of our contributions to the conversation is a new, limited edition blog series that will present key insights and reflections ahead of the major climate conference of parties in Sharm El-Sheikh, Egypt this November. This blog written by Yann Rosetti and Jennifer van Beek is the first installation of our “Road to COP27” series, authored by research analysts from WBA’s Climate and Energy Benchmark Transformation Team. Each blog will discuss a different topic of global importance related to global climate policy that will be on the decision-making table at COP27. Our Climate and Energy Benchmark methodology includes considerations for social indicators such as just transition, yet through this blog series, our researchers will begin to explore a wider scope of climate policy topics. These topics may reach beyond our benchmarks but remain highly critical to the global discussion on corporate responsibility to act on climate change.
Sustainability reporting has come a long way in holding companies accountable for their environmental and social impacts. Companies disclosing their greenhouse gas (GHG) emissions has gone from a rare practice at the beginning of the 21st century to a mandatory practice in many jurisdictions today. However, while companies are increasingly held accountable for their direct contributions to global warming through GHG emissions, a large part of their climate impact has remained unaddressed. Through activities that contribute to climate change, companies also contribute to the costs of climate adaptation and loss and damage related to climate hazards.
To truly close the accountability gap, the World Benchmarking Alliance (WBA) believes that there is a need to accelerate the understanding and discussion around companies´ wider impacts on loss and damage and to collectively explore opportunities for action.
What is the current state of the play?
Loss and damage only began to be addressed by the United Nations Framework Convention on Climate Change (UNFCCC) a few years ago: COP19 (Warsaw, 2013) saw the establishment of the Warsaw International Mechanism (WIM) and its Executive Committee, aiming at addressing “loss and damage associated with impacts of climate change”. Two years later, the Paris Agreement recognized the importance of averting (climate mitigation), minimizing (climate adaptation) and addressing loss and damage. However, neither the UNFCCC nor the Paris Agreement give a precise definition of what is encompassed within loss and damage.
In the following years, there were several steps made to progress the issue of loss and damage, including: the launch of the Fiji Clearing House for Risk Transfer (COP23), the establishment of the Santiago Network (COP25) and the definition of its functions (COP26). Despite the fact that many important steps have been accomplished, establishing a finance flow dedicated to loss and damage is still a complicated task because of the lack of an internationally recognized definition and the absence of a consensus about liability and compensation. Addressing this topic is likely to be at the top of the COP27 agenda in Sharm El-Sheikh, in November 2022. The first Global Stocktake, whose learnings will be published by 2023, will also be a welcome opportunity to analyse the global progress on loss and damage-related issues. The Subsidiary Body for Scientific and Technological Advice and the Subsidiary Body for Implementation are mandated to frame how to assess such progress.
In developing countries alone, by 2030, the impacts of climate change are estimated to cost $400 billion per year and by 2050, costs are expected to be between $1 to $1.8 trillion. The UNFCCC’s ‘common but differentiated responsibilities’ principle claims that the most resourceful actors should carry a fair share of costs from climate change and support the least resourceful. On the side of public actors, the Global North recently resisted calls from the Global South at COP26. On the private sector side, in the Glasgow Climate Pact the UNFCCC expects actors to contribute to provide enhanced and additional support for activities addressing loss and damage. This is where WBA, as the accountability mechanism, could help drive action. Guided by the right standards and practices, companies can drive positive change by managing their climate impacts.
How does WBA drive companies to acknowledge and take accountability for their direct and indirect impacts, including on loss and damage?
WBA’s Climate and Energy Benchmarks are positioned to be part of the wider accountability mechanism on the Paris Agreement goals with a specific focus on the role of the keystone companies across high emitting sectors. These benchmarks effectively assess companies on efforts to prevent costs for loss and damage. Alongside this, the WBA’s Food & Agriculture, Nature, Digital Inclusion and Financial System Benchmarks all assess companies on climate mitigation and/or on ecosystem restoration and conservation efforts. Companies are therewith expected to contribute to the prevention of human-induced climate impacts.
Besides prevention, companies can fulfill their responsibility to reduce the impacts of loss and damage more efficiently. An example of this can be found in WBA’s assessment methodology for a just transition that, among others, expects companies to make social investments to communities affected by their operations and therewith strengthen the resilience of those communities against hazards. Besides respecting their fair share of responsibility to act, companies should also ensure that decision-making processes are inclusive and accessible to all affected stakeholders. Therefore, companies are expected to engage in meaningful social dialogue with stakeholders on all aspects of their just transition planning. The same could be applied to decision-making around addressing loss and damage issues.
What do solutions look like?
The UNFCCC expects actors to contribute to provide enhanced and additional support for activities addressing loss and damage, but additional framing work is needed on how to hold the private sector accountable on loss and damage, either by financial or non-financial means. A recent study aiming at defining a funding mechanism suggests to apply a ‘polluter pays principle’ to harvest funds from major companies, as a payback to partly compensate their environmental impact. This kind of proposal could be used as a basis to explore further the expected financial participation of private actors.
As for non-financial measures, companies should practice comprehensive climate risk assessments and management to effectively inform investments in the prevention of loss and damage. In addition, they should also advocate for suitable policies that are inclusive and consider the needs of directly affected and vulnerable groups.
Focus is increasing on the private sector’s contribution to loss and damage as well as how it can prevent loss and damage costs. WBA is striving to bring attention to these issues and support companies endeavouring to minimize loss and damage exposure. WBA welcomes you to share your opinion and connect with us on these issues.
Contact our Climate and Energy Research Analysts by emailing them at email@example.com.