US and China ratify the Paris Agreement

The US and China ratify the Paris agreement on climate change, kick-starting the process for global implementation.

On the eve of the G20 summit in Hangzhou, the United States and China confirmed that they will ratify the COP 21 Paris Agreement on climate change. The announcement from the two largest carbon emitting nations marks an important milestone in the agreement coming into effect which will have significant impact on global policy and business strategy.

The Paris Climate Change Agreement: Background
In December 2015, 195 countries adopted the first-ever universal and legally binding global climate change agreement. The plan, now commonly known as the Paris Agreement, is set to come into force in 2020, and only after 55 countries that account for at least 55% of global emissions have deposited their instruments of ratification.

At its core, the Paris Agreement consists of five key elements with the overarching goal of mitigating human global impact on climate change:

  • reducing greenhouse gas (GHG) emissions,
  • loss and damage,
  • adaptation,
  • transparency and stocktake,
  • support.

The first element, reducing GHG emissions, includes a target of net zero emissions in the second half of this century and hopes to limit global average temperature increases to 1.5 degrees. The following points address how countries can ensure a smooth and effective implementation of ambitious goals. Additionally, they outline how developed countries can help emerging markets in their efforts to address the impacts of climate change and to join the world in fighting it.

The agreement includes a process to set new targets and report publicly on progress to implement them through a process called global stocktake. The post-2020 climate actions countries intend to take, also called the Intended Nationally Determined Contributions (INDCs), are revised every five years with the intention of becoming progressively ambitious while taking into consideration the potential financial obstacles in the implementation of climate change mitigation measures.

To this end, the last key element of the Paris Agreement is the recognition of the important role of non-state actors in ensuring the success of the goals set by the state signatories. Specifically, the treaty invites the private sector and sub-national authorities to support actions leading to emissions reductions, to promote resilience and adaptability building, and to foster international cooperation in the global fight against climate change.

The Paris Agreement: an opportunity for the private sector and other non-party actors
The Paris Agreement urges developed countries to scale up climate finance and prepare a concrete roadmap to achieve the goal of delivering US$100 billion by 2020 that they had previously been agreed to in Copenhagen. Additionally, it advocates for a significant increase in adaptation finance from current levels and for a greater provision of general support for capacity building and appropriate technology. Cooperation from the private sector will be vital in achieving both of these ambitious goals.

More generally, the urgency of tackling global climate change has led the private sector to implement concrete actions and report on greater environmental, social and governance accountability.  This presents an opportunity for firms to be at the forefront of environmental policy while improving their reputation and operational efficiency.

For instance, the reduction of carbon emissions through better energy management would not only support the Paris Agreement’s overarching aim to mitigate global warming, but would also result in significant operational savings due to reduced energy use and increased resource efficiency. Additionally, if effectively reported to organizations such as the Carbon Disclosure Project, a reduction in carbon emissions would signal to the business’ consumers that the firm is minimising its environmental impact and to its investors that it has a sound environmental risk management policy in place, improving the firm’s reputation and lowering its cost of capital.

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