The 2022 United Nations Climate Change Conference—or COP27—concluded on Sunday, November 20, in Sharm El-Sheikh, Egypt, with a last-minute agreement to establish a “loss and damage” fund for more vulnerable countries that are suffering disproportionately from climate change. While consensus and agreement were generally hard to achieve at COP27, the event did not pass without announcements of some key developments. Here are three developments worth noting.
The CDP Incorporates the ISSB’s IFRS S2 Standard
On November 8, the CDP, which provides the global environmental disclosure platform for corporations, and the International Sustainability Standards Board (ISSB) announced that the CDP will incorporate the ISSB’s IFRS S2 Climate-related Disclosures Standard (IFRS S2) in its reporting platform.
As one of the more consequential announcements made during COP27, the development signals progress toward a comprehensive global baseline for capital markets. The IFRS S2 standard is currently in the last stages of finalization and is likely to be released in early 2023.
The CDP reports that investors representing more than 680 financial institutions with over $130 trillion in assets have asked companies to disclose environmental information through its platform in 2022. More than 280 CDP supply chain members—major buyers with $6.4 trillion in procurement spend—have also asked their suppliers to report through the CDP this year. And more than 18,700 companies—worth over half of global market capitalization—have done so this year.
For investors, the CDP’s move to incorporate the IFRS S2 standard is a welcome development, as it will improve the consistency and comparability of climate-related information. The IFRS S2 standard asks reporting companies to disclose their exposure to climate-related risks, including physical risks and transition risks. It also applies to the climate-related opportunities available to the reporting company.
Stronger Standards from the EPA
The U.S. Environmental Protection Agency (EPA) also used COP27 as an opportunity to announce plans to strengthen proposed standards for reducing methane emissions and other pollutants. The regulations, which the EPA plans to finalize in 2023, will require oil and natural gas companies to conduct routine leak monitoring at every wellsite and compressor station. Among other things, the expanded regulations will also:
- Seek to prevent leaks from abandoned and unplugged wells by requiring companies to document that wellsites are properly decommissioned and wells are plugged before monitoring of the sites is permitted to end.
- Mitigate methane emissions by establishing a “super-emitter” program that uses qualified third-party expert monitors to identify “super-emitters” and report detected leaks at facilities.
- Strengthen requirements for flares to ensure that they are operated properly to reduce emissions.
- Propose new technologies that can be used to detect and monitor leaks.
- Set a zero-emissions standard for pneumatic pumps at affected facilities, with exceptions for sites that lack access to electricity. The requirement will prohibit the use of natural-gas-powered pneumatic pumps unless special circumstances are present.
The new EPA requirements supplement a 2021 proposal, improving its standards and adding additional requirements for sources that were not addressed in the earlier version. The revised proposal is projected to reduce methane emissions by 87% from 2005 levels in the sources it covers. According to the EPA, it would also increase the recovery of enough natural gas from 2023 to 2035 to heat roughly 3.5 million homes for the winter.
The regulations will require states to develop and submit plans to limit methane emissions within 18 months of the issuance of final regulations.
ISO Launches Net Zero Guidelines
The International Organization for Standardization (ISO) introduced their Net Zero Guidelines during COP27 to address a “fragmented net zero governance landscape” in which progress toward net zero is hampered by competing approaches. With its guidelines, the ISO seeks to provide a common reference and a foundation that helps entities—city, state and regional governments, as well as organizations—understand, align around and, most importantly, plan for net zero.
In addition to defining key terms related to climate action, greenhouse gases (GHG) and mitigation of GHG emissions, the guidelines include 10 guiding principles that are designed to serve as the foundation for achieving net zero emissions. They include urgency, prioritization, credibility and equity and justice, among others.
The guidelines then offer recommendations for how to take action in alignment with the principles. The recommendations address:
- Establishing levels and boundaries for net zero
- Leadership and commitment
- Targets and target-setting
- Counterbalancing residual emissions
- Measurement and monitoring
- Wider impact, equity and empowerment
- Communication, reporting and transparency
The scope of the guidelines is aligned with the objectives of the United Nations Framework Convention on Climate Change (UNFCCC) and the High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities. More than 1,200 experts, including Sphera experts Chris Koffler and Stefan Premer, collaborated to develop the guidelines, which are available here.
Looking for Hope and Hoping for Action
COP27 was meant to demonstrate action taken in support of commitments made at COP26. While participants may have struggled to act collectively, there were still some signs of progress. The ISO Net Zero Guidelines and the incorporation of the IFRS S2 standard into the CDP disclosure platform should result in improved, more comparable reporting. And the proposed EPA requirements that seek to reduce methane emissions are promising. While COP27 may not have demonstrated enough progress for some, these developments and the establishment of the “loss and damage fund” represent movement in the right direction.