Climate goals and their time frames

The Paris Agreement sets perhaps the most ambitious goal of any internationally agreed objectives today: holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.

As you can see, this is an open-ended task. For systemic movement towards decarbonization and holding the increase in the global temperature, the Paris Agreement works on a five-year cycle. Moreover, every five years climate ambitions should be revised to strengthen them. This means that every five years each country is expected to submit an updated national climate action plan also known as NDC (Nationally Determined Contribution).

According to climatologists, to keep global warming to no more than 1.5°C, greenhouse gas emissions need to be reduced by 45% by 2030 and reach net zero by 2050. This science-based evidence guides parties to the Paris Agreement to meet the deadlines for achieving climate goals.

What is the Global Stocktake?

To assess the collective progress towards achieving the purpose of the Paris Agreement, there is a special mechanism called the Global Stocktake (GST). The mandatory nature of such a mechanism is specified in Article 14 of the Paris Agreement.

The COP, serving as the meeting of the Parties to this Agreement, shall undertake its first global stocktake in 2023 and every five years thereafter unless otherwise decided by the Conference of the Parties, serving as the meeting of the Parties to this Agreement.

The first GST will take place at COP28 in Dubai, and the next shall undertake every five years thereafter.

The outcome of the GST shall inform countries in updating and enhancing their climate actions, as well as in enhancing international cooperation for climate action.

Possible outcomes for business

So, how might the GST results impact businesses?

The first thing to understand is that today’s climate ambitions are not enough to achieve the goals of the Paris Agreement. As noted above, the main purpose of GST is to inform countries to update and enhance their climate actions. Therefore, the following business consequences can be expected from GST at COP28 in Dubai:

Strengthening climate ambitions at government level. This can be implemented in the following forms:

Revision of NDC to increase GHG reduction ambitions (currently, only the EU has climate targets on pace with the Paris Agreement)

Strengthening climate regulation (e.g., tightening disclosure of climate information, mandatory use of IFRS S1 standards for certain industries and companies, increasing carbon taxes in countries where they are implemented, and so on)

Review of national climate strategies (with a high probability, we can expect an increase in the share of renewable energy sources in electricity generation, as well as further electrification of transport and industry)

Development of voluntary and mandatory carbon markets

Review of corporate climate strategies. Increasing climate ambitions at government level will inevitably lead to the need to reconsider corporate climate goals. This could be implemented like this:

Revisiting the timeline for achieving Net Zero

Increased focus on indirect emissions (Scope 3)

Increasing the number of implementations of climate projects

This list of possible business implications is not exhaustive but provides an indication of the direction of climate policy post-COP28 in Dubai.

Large companies have integrated the climate agenda into their strategies for quite some time. However, as time progresses, medium and small businesses will also be increasingly impacted by the climate aspects. Considering this, it is crucial for businesses to be prepared for the growing importance of the climate policy, both from a regulatory viewpoint and within their own operations.

Why business should care about GST at COP28?