COP26, the UN climate summit which opens in Glasgow on October 31, 2021, is widely seen as a pivotal moment in the effort to halt climate change.1 According to the most recent physical-science report from the Intergovernmental Panel on Climate Change (IPCC), a UN-sponsored scientific body, it remains possible to keep temperatures from rising by more than 1.5°C over the preindustrial baseline—and thereby stabilize the climate. Reaching the 1.5°C target would require rapid reductions of greenhouse-gas (GHG) emissions, but these reductions are not yet happening at the necessary pace or scale.2
The UK government, which will preside over COP26, has expressed every intention of turning the situation around.3 Even if the summit is not a complete success, discussions and agreements in Glasgow could accelerate the world’s response to climate change—and alter the business landscape. For companies, several major topics on the COP26 agenda stand out: government commitments, development finance, corporate commitments, capital investment, and adaptation and resilience. This post offers a look at where things stand with respect to each topic and what business leaders should watch for as events unfold. (To learn more about McKinsey’s participation in COP26 and register for livestreamed events, visit our microsite.)
Government commitments
Where things stand: Governments’ climate pledges are still not widespread or ambitious enough to put the world on track to 1.5°C of warming. The IPCC has estimated that limiting warming to 1.5°C would first require cutting global GHG emissions by 45 percent, relative to 2010, by 2030.4 But a UN analysis released earlier this week found that countries’ registered plans to curb GHG emissions, known as their “nationally determined contributions” (NDCs), point toward a 15.9 percent increase in global emissions by 20305—and a 2.7°C increase in global temperatures by 2100.6
What to watch for at COP26: Should national (or subnational) governments step up their climate commitments, they may change regulations on companies’ energy use and environmental practices. Anticipating and adjusting to these regulatory shifts will be critical to business success as the net-zero transition progresses.
Development finance
Where things stand: In 2009, developed countries vowed that by 2020, they would mobilize $100 billion per year to pay for climate mitigation and adaptation in developing countries. (The Paris Agreement of 2015 called for keeping that $100 billion annual-funding target in place from 2020 through 2025.) However, analyses by the OECD and the United Nations indicate that developed countries mobilized less than $80 billion for climate aid to developing countries in 2019.7 The financing gap leaves poorer countries less able to cope with physical climate hazards—hazards to which they are disproportionately exposed. A lack of funds could also keep these countries from achieving low-carbon development and delivering on their NDCs, some of which are predicated on receiving adequate climate financing.
What to watch for at COP26: Official delegates are charged with settling several matters during the conference. Those from developed countries are supposed to produce a report on how much funding they have delivered. They’ve also been asked to set out a plan for delivering climate-related development financing toward the $100 billion annual target over the next five years. Last, delegates will work on defining a new annual-funding goal for 2026 and beyond, along with an agreed-upon way to measure how much money is going toward that goal. The choices that delegates make could influence the flow of climate funding from public and private sources to developing markets over the coming years.
Corporate commitments
Where things stand: Companies can play a decisive role in accelerating climate action, both by decarbonizing their own operations and by developing and producing the next generation of technologies that can help prevent ongoing GHG emissions. The challenge is especially steep for companies in hard-to-abate sectors—those with especially carbon-intensive operations, such as cement, steel, and transport. (The IPCC has reported that industry accounted for roughly 21 percent of global GHG emissions in 2010 and that transport accounted for 14 percent.) Getting rid of these emissions won’t be easy. It will take significant capital investment, along with changes to workforce skills and long-standing practices.
What to watch for at COP26: Although companies play a limited formal role in UN climate negotiations, they will be prominent participants in many of the supplementary events that are scheduled to take place during the two-week summit. Moreover, the United Nations has appointed two “high-level champions” to be responsible for engaging companies and other nonstate actors in climate action. Observers can expect to see companies make new commitments or step up existing ones and to lay out plans for making good on these pledges.
Capital investment
Where things stand: The transition to net-zero GHG emissions would require businesses in every sector—and particularly in hard-to-abate sectors—to overhaul their stocks of equipment and their product portfolios so that emissions are greatly reduced, if not eliminated. This agenda will entail significant capital spending, in an acceleration of trends that are well under way, including the build-out of renewable-energy capacity, the rollout of electric vehicles, and the retrofitting of buildings and factories. Some spending is taking place already: the Climate Policy Initiative finds that climate-related finance in various forms (including development finance) amounted to more than $600 billion in 2019–20.8 Far more will be needed. Estimates put the capital investment required for a net-zero transition at trillions of dollars per year.
What to watch for at COP26: Earlier this year, some 160 banks, asset managers, and asset owners formed a new mega-alliance of financial institutions that have committed to aligning their operations and portfolios with net-zero pathways. Companies in this consortium, the Glasgow Financial Alliance for Net Zero (GFANZ), represent around $70 trillion in holdings. During and after COP26, GFANZ is expected to recruit more members and help them share the practices they are using to pursue net-zero targets. Crucially for businesses, GFANZ also plans to synthesize its members’ opinions on what a company’s net-zero transition plan should entail and set standards for companies to follow. Understanding these standards will help corporate leaders remain in good standing with the providers of the capital that their companies need to sustain long-term growth.
Adaptation and resilience
Where things stand: The Paris Agreement of 2015 established a Global Goal on Adaptation (GGA), covering such issues as reducing exposure and increasing resilience to the effects of climate change. It also specified that climate financing should be used to fund both mitigation and adaptation. Many developing countries seek to achieve a 50-50 split between these two priorities. However, mitigation has attracted around twice as much funding as adaptation has. The countries that are most vulnerable to climate change have urged developed countries to address this discrepancy as they make plans for scaling up development financing.
What to watch for at COP26: So far, the GGA has been loosely defined, and progress toward it has not been tracked in any formal way. Parties to the UN Framework Convention on Climate Change have established an Adaptation Committee to administer activities related to the global goal. COP26 will provide the committee with a chance to bring attention to the need for a well-defined and generally agreed-upon global goal, along with a method for gauging progress toward it. These developments would help clarify the adaptation challenge for governments and companies and allow them to understand the roles they might play in meeting it (including by financing adaptation efforts).
1. COP26 is formally called the 26th UN Climate Change Conference of the Parties. The “parties” in the name are the governments that have joined the United Nations Framework Convention on Climate Change.
2. Climate change 2021: The physical science basis, Intergovernmental Panel on Climate Change, August 6, 2021, ipcc.ch.
3. COP26 explained, UK Government and United Nations Framework Convention on Climate Change, 2021, ukcop26.org.
4. Summary for policymakers,” Global warming of 1.5°C: An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty, Intergovernmental Panel on Climate Change, 2018, ipcc.ch.
5. “Updated NDC synthesis report: Worrying trends confirmed,” United Nations Framework Convention on Climate Change, October 25, 2021, unfccc.int.
6. Nationally determined contributions under the Paris Agreement: Revised synthesis report by the Secretariat, United Nations Framework Convention on Climate Change, October 25, 2021, unfccc.int.
7. Alina Averchenkova et al., Delivering on the $100 billion climate finance commitment and transforming climate finance, Independent Expert Group on Climate Finance, December 2020; Climate finance provided and mobilised by developed countries: Aggregate trends updated with 2019 data, Organisation for Economic Co-operation and Development, September 17, 2021, oecd.org.
8. Baysa Naran et al., Global landscape of climate finance 2021: Preview, Climate Policy Initiative, October 18, 2021, climatepolicyinitiative.org.