EACC News

Two views: New Playing Field

The global imperative to reduce greenhouse gases is forcing governments and private enterprise to redefine “business as usual.” Our two experts discuss the world’s changing economic model.

Adrien Fourmon

Head of Public Law, Energy and Environment practice, Jeantet Paris

Julien Paulou

Director, Energy & Climate, Deloitte France 

 

What new obstacles are companies facing as they seek to address climate change?

Adrien Fourmon

Disclosure and transparency are two primary challenges companies must overcome as they undertake the fight against climate change. Under the United Nations Framework Convention on Climate Change (UNFCCC), companies will have to provide reliable, transparent and comprehensive greenhouse gas information relative to their activities. The reporting requirements will include information on emissions reduction efforts as well as on finance, technology transfer and capacity-building. This transparency and reporting system will enable better understanding of and progress on climate actions.

An unprecedented number of companies and investors are now actively addressing the climate change challenge—making climate action commitments, pledging carbon neutrality or net-zero emission goals, and disclosing credible action plans to back up their ambitions.

Julien Paulou

It’s true that demand for transparency and disclosure is more prevalent than ever, as witnessed by the recent announcement at COP26 of the establishment of the International Sustainability Standards Board (ISSB) which aims to develop a global baseline of sustainability disclosures for the financial markets. But the biggest challenge companies are now facing is to make their climate commitments come true. The last decade was the “decade of ambition”, the next 10 years need to be the “decade of implementation” as global GHG emissions need to be halved by 2030. We have seen corporate commitments bloom in recent years but since the Kyoto Protocol entered into force in 2005, global emissions have continued to rise, compromising our ability to meet the 1.5°C target. Companies must now look beyond immediate financial performance and build the foundation of their future resilience by taking environmental impacts into account in their decision-making processes. The most successful companies will be those that anticipate this new paradigm and diversify their offers to steer away from carbon intensive activities. The European taxonomy will be a strong driver to channel financial flows towards green assets and financiers will increasingly be looking for green projects to fund.

Achieving emissions reduction targets will be difficult without binding legislation. Is the world making progress in this domain?

Adrien Fourmon

Climate change litigation is expanding, becoming a global phenomenon with plaintiffs seeking rulings that both private and government entities are being forced to address. For example, in France several environmental associations have sued the state for “climate inaction.” Two cases come to mind: “Grande Synthe” and the “Affaire du siècle.” In both these cases, the French government was convicted of failing to comply with the Paris Agreement. The government was given nine months to curb greenhouse gas (GHG) emissions such that they comply with the Paris Accord objectives.

Up to now, climate litigation has focused on companies that have contributed or continue to contribute to GHG emissions. Companies are also being targeted for failure to prepare for the effects of climate change. So yes, legislation aimed at inhibiting climate change is expanding around the world.

Julien Paulou

Progress is being made at different levels, but change is not happening as quickly as everyone would like. The European Emissions Trading System (EU ETS), established in 2005, has been the EU flagship programme to reduce emissions from heavy industries. However, until a recent series of reforms, its effectiveness was hampered by low carbon prices. The European Commission recently consulted about whether to extend the EU ETS to include road transport and the heating of buildings, which would allow the EU ETS to cover more than 70% of EU greenhouse gas emissions. The EU is also looking to tackle imported emissions and to reduce the phenomenon known as carbon leakage, which happens when production is moved to countries with less robust carbon standards. Earlier this year the EU presented the Carbon Border Adjustment Mechanism (CBAM), which proposes to equalize the carbon playing field by applying a carbon price on imported goods to Europe from countries with lower carbon standards. Under CBAM rules, EU importers would be required to purchase carbon credits at the price that would have been paid had the goods been produced under the EU’s carbon pricing rules.
 
 

Which measures most need to be taken and why do we need the private sector to fund climate change action?

Adrien Fourmon

Finance and investment are two domains in which a commitment to fighting climate change is critical. During COP 26, nearly 500 global financial services firms agreed to align $130 trillion—some 40 percent of the world’s financial assets—with the climate goals set out in the Paris Agreement. This kind of action will have an enormous impact on the achievement of climate goals, including limiting global warming to 1.5 degrees Celsius.

Another important measure is the European Commission’s ongoing revision of climate action legislation as it relates to 2030 emissions reduction targets. Known as “Fit for 55,” the legislation package is aimed at limiting the EU’s emissions by at least 55% within the 2030 timeframe, and thereby positions Europe at the forefront of the fight against climate change.

Julien Paulou

While reducing emissions of existing facilities and operations is important, new investment initiatives must take measure of their impact at every step. This means not only the building of physical infrastructure but the design of logistics networks, supply chains and companies’ very business models. 
 
The emphasis should be on energy sufficiency (avoiding unnecessary energy consumption) and energy efficiency (using energy efficiently). The energy transition will involve “green” energy resources ( biomass, green electricity, green hydrogen…). Serving the world’s energy needs will require enormous capacities and there will not be enough green energy to go around. As a result, companies will increasingly be looking to secure energy resources for their needs. Some companies are beginning to either invest directly in their own energy production capacity or sign agreements with providers of renewable energies. For example, BASF recently announced the purchase of an offshore wind farm in Holland, with the aim to implement low-emission technologies at its production sites in Europe. This new and challenging economic dynamic effectively forces private enterprises to take a proactive role in the fight against climate change and to assess their level of risk exposure. Transition risks, or risks associated with the shift toward a more environmentally responsible society, need to be evaluated and anticipated to cover rising resource prices, environmental regulation, changing customer and investor expectations. Physical risks also require attention and investments in order to increase the companies’ resilience against extreme weather events caused by climate change.
 

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Adrien Fourmon
Head of Public Law, Energy and Environment practice, Jeantet Paris

Jeantet – Avocat – Adrien Fourmon : Jeantet

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Julien Paulou
Director, Energy & Climate, Deloitte France

Julien Paulou, Directeur Deloitte Développement Durable

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