The relation between COP27 and ESG

Published on: 26 October 2022
by Aaroshi Rathor
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The whole world is eagerly awaiting the annual COP27, to be held between 6-18 November in Sharm-el-Sheikh, Egypt. World leaders, delegates, climate activists, scientists, and experts from various specialised fields are attending the conference with the common goal of combating the climate crisis, which is rapidly increasing and pushing the global ecosystem and communities to their limit. 

The conference is intended to deliver meaningful impact for countries worldwide, at the national and international regulatory levels, but it is equally critical to understand how COP27 is important for companies who are implementing ESG into their business strategy. So, how is the conference related to ESG goals?  

A better outlook on company ESG performance 

An ESG performance rating is critical for private companies to attract potential investors and stakeholders. If  COP27 results in climate policy progress, the focus of companies will shift significantly as , due to growing consumer and investor pressure, they would have to upgrade their ESG practices in accordance with the new policies and treaties ratified internationally by countries pledging to act on curbing greenhouse gas emissions and opting for renewable energy. They are more likely to be held accountable for their particular company’s sustainability actions and investments. Performance will be measured, in addition to profitability, on company adherence to the new norms and regulation of their ESG performance to effectively mitigate climate change. 

Positive reputation of the brand 

Companies are aiming to develop a positive and lasting brand image in the mind of employees, investors, and stakeholders. ESG events and climate conferences like COP27 go hand in hand as most of these conferences are not only focussed on environmental sustainability and governance, but also help companies and businesses expand their network. 

They also portray a positive reputation of the company as one of diversity and inclusivity which leads to attracting potential investors who are concerned about a company’s sustainability operations and whether or not they are practising the goal of ethical investing. As reiterated in our ESG investments article, many companies have increasingly adopting sustainability goals in their overall business strategy in order to attract and retain the youth workforce. Along with this, many youth investors are opting for smart and sustainable investments which provide better commercial returns as compared to those with traditional investments. 

Addressing global ESG challenges 

Climate conferences provide a worldwide view of the impending challenges that we all face. Climate experts, delegates, and scientists from various fields gather at a global platform to assess the science, then push for collaboration,  along with rectifying mistakes and taking key lessons from the failures of previous climate treaties. What is most abundantly clear is how challenging it continues to be to reach binding agreements through this collaboration.  

A sense of perseverance allied with pragmatism is key, if we are to gain insightful advice and plan actions to combat the climate crisis in a practical manner. Each country is currently facing a different combination of ESG challenges at the moment and, through a cumulative mix of minds, countries can talk about their region and connect it to the global challenge they are presently facing. Businesses can take note of the trending issues and see where opportunities trickle down. For example, at the upcoming COP27, India will be raising the issue of climate finance to support the deployment of renewable energy projects at a large scale that helps put a cap on the public and private financial flow to support low-emission technologies. As a result, companies can get massive investments in the renewable energy sector that profit the company along with creating a sustainable business for the future.      

Increase in profitability and responsibility towards the environment

Along with addressing critical financial factors in marking the success of a company, COP27 is also helping companies take action on the  ‘Environment’ aspect, that’s to say implementing ESG. For example, Etihad Airways will be bringing in delegates on net-zero emission flights. Demonstrative, perhaps, but is this aviation industry greenwashing or a commitment to the transition to more sustainable practices? 

Certainly, adopting Sustainable Aviation Fuel (SAF) not only helps in creating a better environment but also helps in speeding up aircraft performance along with creating a much-needed future for sustainable aviation that helps in achieving the goal of net zero emissions by 2050. The question is how well COP27 can frame this transition while also tackling how we, for example, reduce unnecessary business travel while driving airline profitability. Prevention is always the most prudent policy, but how this works to responsibly market an industry predicated on growth is a challenging question to bear in mind.

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COP27 aims for impactful change. Both for leaders with regard to combating climate change, and in helping companies alter their ESG strategy for the long-term. While some are sceptical of the event as ‘corporate greenwashing’, others are able to see the difference already, with certain companies taking immediate steps in implementing action towards climate change as the event nears. COP27 is deemed to be one of the ‘make or break’ conferences for the world's climate problems and aims for countries to ‘take action’ in combating climate change on an immediate basis instead of simple observation. It has a major effect on businesses worldwide as they will have to re-define their vision for the future and company ESG strategies to help transition towards sustainable businesses.  

COP27 and ESG are two sides of the same coin. Neither can exist without proper implementation, planning, and international collaboration from businesses and governments across the world toward a sustainable future. Whatever the case, COP27 will be the defining moment for our climate’s future and the way businesses function with regard to ESG. The world is arguably passing its breaking point and, whatever mitigation mechanisms are implemented, governments, businesses, and individuals alike will need to adapt to the change we have wrought.

According to a report by Lancet Countdown, climate change is triggering multiple crises around the world, such as heat related illness, food insecurity, increased air pollution and energy poverty. The report also states that “Despite the challenges, there is clear evidence that immediate action could still save the lives of millions, with a rapid shift to clean energy and energy efficiency.”  COP27, and its antecedents, constitute the main mechanism we all have to engage in climate collaboration, and time is of essence. For the private sector’s ESG goals to remain relevant under the guiding light of regulation, COP27 must work.

For more updates on COP27, please visit https://www.knowesg.com/ 

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