Cancun: implications for business

Despite not agreeing legally binding commitments to reduce emissions, the Cancun conference does give more momentum to global, regional and local efforts to address climate change. As a result, the creation of incentives, penalties and trading arrangements in various forms in different markets becomes more likely.

The outcome of the conference reinforces our view that businesses should proactively address the business opportunities and risks around climate change to maximise shareholder returns.

Positive progress on key elements of a legally binding treaty, and more tangible progress—albeit with work still to do—on issue-specific agreements such as finance and forestry were achieved.

Foundations of global climate deal agreed in Cancun:

• Although Cancun did not deliver a legally binding global agreement, it laid the foundations for one being reached at next years UN climate talks in South Africa.
• Cancun kept the door open to the possible extension of the Kyoto Protocol beyond 2012, although Japan, Russia & Canada are expected to remain opposed without a deal also binding developing countries to action.
• Cancun also aimed to secure the future of the global carbon market by pledging to complete talks on extending Kyoto before its first commitment period expires in 2012 and agreed reforms to strengthen the Clean Development Mechanism.

Cancun saw progress on issue-specific agreements:

• Agreements included climate finance, clean technology collaboration, forestry protection and adaptation.
• Most notably, governments agreed to create a Green Climate Fund to support climate change mitigation and adaptation in the developing world, with a goal to raise $100 billion a year in climate finance by 2020.
• Governments also agreed an initial package of measures to boost action to reduce emissions from deforestation and forest degradation in developing countries.
• This progress notwithstanding, many elements of the full agreements aimed for on these issues have yet to be clarified and will be the subject of future negotiations.

Businesses continue to face compelling reasons to act:

• The agreements reached in Cancun should give businesses more confidence in the future of the low carbon economy and international markets in clean energy, as well as in the ability of the UN process to drive progress in their development.
• Progress at Cancun will bolster the impetus for increased ambition at the regional, national and sub-national levels, for example by making it more likely that the EU's 2020 emissions reduction target is increased from 20% to 30% below 1990 levels, which would bring an uplift in the UK's 2020 target from 34% to 42%.
• Businesses continue to face compelling reasons to take action, including achieving cost savings, access to new markets and improved brand value.
• Business should remain confident that dealing with climate change will remain an important and increasing business risk and more importantly a significant business opportunity.