The Morning After COP26 – The Broader Regulatory Outlook in 2022

By Rupert D.E. Brown, CTO Evidology Systems

This article is being drafted as the UN Climate Change Summit in Glasgow, aka COP26, comes to a close, culminating in the haggling over the complex details of emissions targets and potential regulations that need to be enacted on a worldwide basis.

The demonstrations held around the world during the middle weekend of the conference have focussed largely on reinforcing the “slogan” christened by Greta Thunberg that COP26 is largely all about “Blah Blah Blah” rather than achieving any clear measurable goals.

Climate change regulation poses a unique challenge to the worlds legislators and regulators because it needs to be consistently enforced along supply chains and across national borders, rather than the more traditional mechanisms of import/export restrictions and accompanying tariffs, that been used for much of humanity’s existence to regulate the flow of goods and replenish national exchequers.

Global resources and end consumers are not uniformly distributed both in pure geographic terms nor across current geopolitical boundaries, which further compounds the complexity of any attempt at consistent cross border approaches.

It comes as no surprise therefore, that the current approach being taken is to evolve a series of targets, credits and offsets based largely around existing global financial valuation and transactional mechanisms to try and “nudge” the physical targets towards the goals “determined by science”.

After the financial crash of 2008 it is little wonder that there is significant public scepticism that this combination of fiscal techniques and long-term headline emissions targets will have a significant impact on global warming and other climate related problems.  Winston Churchill’s “Action this day” slogan resonates particularly strongly at the moment.

We have already seen significant work being doing by asset managers and other investment companies to try and document how much they are investing in ecologically friendly and ethical organisations. However, it is unclear whether investing in traditional oil and coal-based industries will no longer produce “safe” returns for pension funds or underpin sovereign wealth funds, such as Norway and the Gulf states.

Standard financial metrics led by groups such as the Sustainability Accounting Standards Board (SASB) are starting to emerge, and we can expect to see a steady refinement of these in the coming years as techniques improve. It is disappointing however, that at this stage much of this material is behind a paywall – except for academic use given the profits of its main corporate proponents and the need to engage with those who need to be persuaded it is a viable approach.

We should not therefore expect a significant change in the regulatory outlook for 2022 post COP26, but rather a steady incremental growth in the range of ESG related data being collected. At some stage an inflection point will be determined that then starts to drive down key emissions and environmental impact metrics.

For the moment the larger elephant in the room is going to be tackling the nebulous problem of “equivalence” in what will hopefully be the first full economic activity year post “Covid”. The recent spats around fishing licenses and the persistent threat to trigger Article 16 of the Northern Ireland Protocol are not providing a stable diplomatic environment between Britain and the EU to clarify this. We should also remember that the outcome of the recent German general election has not been resolved and the French presidential election due in 2022 has already made its presence felt.

The Covid pandemic will also continue to cast a long regulatory shadow over many sectors. Whilst it is clear the UK in particular is trying to push it well into the background of the rear-view mirror, most nations have still to conduct their political reviews of actions taken in the pandemic. All we have seen so far from many countries have been mandatory vaccination requirements for front line staff in the public sector – there is much more that may potentially be enacted around long term “passporting” as well as building design and the need to rebuild trust in public transport, especially if infection rates remain stubbornly persistent.

Despite the many geopolitical pressures and regulatory initiatives in play what is still needed is to improve the general efficacy of regulations. The recent revelation that the UK Information Commissioner’s Office (ICO) had only collected 26% of the fines it had levied in the past 21 months (this percentage was less than in the previous period), deserves more publicity and scrutiny both in the UK and EU.

History will judge whether both the Covid pandemic and the commitments made at COP26 will actually have the long term behavioural and social impact with related regulatory reinforcement that many expect. However, it will take many years before we can make that judgement objectively, and for the moment we will remain in a broadcast and social media fog of alleged “unprecedented” change.

By Rupert D.E. Brown, CTO Evidology Systems

This article is being drafted as the UN Climate Change Summit in Glasgow, aka COP26, comes to a close, culminating in the haggling over the complex details of emissions targets and potential regulations that need to be enacted on a worldwide basis.

The demonstrations held around the world during the middle weekend of the conference have focussed largely on reinforcing the “slogan” christened by Greta Thunberg that COP26 is largely all about “Blah Blah Blah” rather than achieving any clear measurable goals.

Climate change regulation poses a unique challenge to the worlds legislators and regulators because it needs to be consistently enforced along supply chains and across national borders, rather than the more traditional mechanisms of import/export restrictions and accompanying tariffs, that been used for much of humanity’s existence to regulate the flow of goods and replenish national exchequers.

Global resources and end consumers are not uniformly distributed both in pure geographic terms nor across current geopolitical boundaries, which further compounds the complexity of any attempt at consistent cross border approaches.

It comes as no surprise therefore, that the current approach being taken is to evolve a series of targets, credits and offsets based largely around existing global financial valuation and transactional mechanisms to try and “nudge” the physical targets towards the goals “determined by science”.

After the financial crash of 2008 it is little wonder that there is significant public scepticism that this combination of fiscal techniques and long-term headline emissions targets will have a significant impact on global warming and other climate related problems.  Winston Churchill’s “Action this day” slogan resonates particularly strongly at the moment.

We have already seen significant work being doing by asset managers and other investment companies to try and document how much they are investing in ecologically friendly and ethical organisations. However, it is unclear whether investing in traditional oil and coal-based industries will no longer produce “safe” returns for pension funds or underpin sovereign wealth funds, such as Norway and the Gulf states.

Standard financial metrics led by groups such as the Sustainability Accounting Standards Board (SASB) are starting to emerge, and we can expect to see a steady refinement of these in the coming years as techniques improve. It is disappointing however, that at this stage much of this material is behind a paywall – except for academic use given the profits of its main corporate proponents and the need to engage with those who need to be persuaded it is a viable approach.

We should not therefore expect a significant change in the regulatory outlook for 2022 post COP26, but rather a steady incremental growth in the range of ESG related data being collected. At some stage an inflection point will be determined that then starts to drive down key emissions and environmental impact metrics.

For the moment the larger elephant in the room is going to be tackling the nebulous problem of “equivalence” in what will hopefully be the first full economic activity year post “Covid”. The recent spats around fishing licenses and the persistent threat to trigger Article 16 of the Northern Ireland Protocol are not providing a stable diplomatic environment between Britain and the EU to clarify this. We should also remember that the outcome of the recent German general election has not been resolved and the French presidential election due in 2022 has already made its presence felt.

The Covid pandemic will also continue to cast a long regulatory shadow over many sectors. Whilst it is clear the UK in particular is trying to push it well into the background of the rear-view mirror, most nations have still to conduct their political reviews of actions taken in the pandemic. All we have seen so far from many countries have been mandatory vaccination requirements for front line staff in the public sector – there is much more that may potentially be enacted around long term “passporting” as well as building design and the need to rebuild trust in public transport, especially if infection rates remain stubbornly persistent.

Despite the many geopolitical pressures and regulatory initiatives in play what is still needed is to improve the general efficacy of regulations. The recent revelation that the UK Information Commissioner’s Office (ICO) had only collected 26% of the fines it had levied in the past 21 months (this percentage was less than in the previous period), deserves more publicity and scrutiny both in the UK and EU.

History will judge whether both the Covid pandemic and the commitments made at COP26 will actually have the long term behavioural and social impact with related regulatory reinforcement that many expect. However, it will take many years before we can make that judgement objectively, and for the moment we will remain in a broadcast and social media fog of alleged “unprecedented” change.