Global Climate Change Cooperation: Takeaways from COP26 for Regulated Entities

Global Climate Change Cooperation: Takeaways from COP26 for Regulated Entities

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Upon taking office in January, the Biden Administration immediately prioritized climate change and environmental justice, fulfilling President Biden’s campaign promise. In the past two weeks, President Biden reiterated those priorities at COP26, the 2021 United Nations Climate Change Conference, where world leaders, activists and stakeholders gathered to discuss strategies to tackle climate change. President Biden emphasized aligning domestic and international in this “decisive decade”1 and pledged that the United States will be an active participant and leader. Three topics of particular interest that are likely to impact regulated entities are (1) methane emissions reduction pledges, (2) continued attention on climate justice at the domestic and international levels, and (3) evolving environmental, social and governance (ESG) disclosure standards. The COP26 commitments will likely influence domestic environmental policies and affect businesses across industries, as highlighted below.

Methane Emissions Reduction

Methane significantly contributes to ground-level ozone formation and warming, making it a prime target in climate change reduction efforts. To combat methane’s effects on the climate, international and domestic entities introduced methane reduction strategies at COP26. At the time of publication of this alert, more than 100 countries representing 70% of the global economy, including the United States, have joined the global methane pledge, which commits to meeting the Paris Agreement goal of keeping warming well below two degrees Celsius.2 Crucial in this effort lies a deal between the United States and China, the two largest carbon dioxide emitters, to boost climate cooperation. While the commitments are voluntary and without enforcement mechanisms, the agreement nonetheless includes curbing deforestation and reducing methane emissions—even though, notably, China did not sign the global methane pledge. The United States and China agreed to develop new methane policies for the energy, waste and agricultural sectors before next year’s climate talks in Egypt.

President Biden signaled his support for the global pledge by releasing the U.S. Methane Emissions Reduction Action Plan. The plan focuses on reducing methane emissions in the oil and gas sectors and landfills, remediating abandoned coal mines, and expanding incentive-based and voluntary partnership efforts to reduce agricultural methane emissions. The plan features harmonized efforts by multiple US agencies, including the Environmental Protection Agency (EPA), Pipeline and Hazardous Materials Safety Administration, Bureau of Land Management and Bureau of Ocean Energy Management.

Because several agencies are participating in the plan, many industrial sectors should expect new regulations aimed at ensuring the United States achieves its domestic and international methane reduction commitments. For example, the plan calls for measurable improvements in agriculture-based carbon sequestration, reducing food waste in landfills, upgrading pipelines to limit vented and flared gas, and introducing education and incentives to further limit methane emissions. These and other domestic regulations will create changes for businesses in the oil and gas, mining, and agriculture industries.

Climate Justice

Climate justice recognizes that climate change often disproportionately impacts underprivileged populations. This idea ties to the broader concept of environmental justice, which describes the effects of environmental harms, from climate change and other factors, in minority and low-income communities and Indigenous populations. Environmental justice is a pillar of the Biden Administration, integrated into virtually every policy and agency action. During the conference, activists marched in Glasgow to demand climate justice. Many argued that the formal proceedings failed to include communities disproportionately impacted by warming temperatures and severe weather events.

Inside the negotiations, several nations reiterated promises to provide financial assistance to countries facing rising sea levels, food shortages and other effects of climate change. Twelve donor governments pledged $413 million to the Least Developed Countries Fund, providing support for those most at risk from climate change. The fund provides climate resilience financing to 46 countries that have contributed the least to carbon emissions yet bear some of the most extreme consequences. And under the final agreement, developed nations committed to double by 2025 the roughly $20 billion they provided to developing nations in 2019 to adapt to climate impacts. These conversations mirror efforts to advance environmental and climate justice in the United States.

The Biden Administration implemented a whole-of-government approach to prioritize environmental justice across federal agencies. COP26 coincided with the passage of the Bipartisan Infrastructure Deal in the US House of Representatives, which includes provisions to remediate environmental harms, build a clean power grid and expand access to clean drinking water. The legislation also includes justice-focused sections designed to address historical environmental injustices and ensure that disadvantaged communities benefit from substantial climate-related investments. The proposed Budget Reconciliation Bill includes $3 billion for environmental and climate justice block grants, $555 billion in tax credits and incentives to develop renewable energies such as wind and solar and promote electric vehicles, and motivation for these facilities to be built near overburdened communities. International efforts to provide financial assistance to developing countries facing severe climate change impacts also reflect the White House’s Justice40 Initiative, which aims to ensure that at least 40% of the benefits of clean energy and climate investments—including those under the Bipartisan Infrastructure Deal—reach disadvantaged communities.

While climate justice is a focus of domestic legislation and regulation in the United States, companies may also increasingly be held accountable for the environmental justice impacts of their operations abroad. The conversations and protests at COP26 highlight the reputational risk that corporations may face for outsourcing environmental impacts to developing countries. While this information has not always historically been made public or otherwise disclosed, climate and sustainability data points may be encompassed in emerging disclosure requirements applicable to companies operating in the United States and internationally, as discussed below.

ESG Disclosures

For decades, reporting requirements for sustainability and climate topics have been fractured, and companies operating in multiple jurisdictions typically must navigate between multiple regulatory schemes depending on where their operations are located, from management to production to consumption. The parties to COP26 aim to streamline and standardize the disclosure system in 2022. Notably, the International Financial Reporting Standards Foundation announced the launch of the International Sustainability Standards Board (ISSB), which will develop a comprehensive global baseline of sustainability disclosure standards. A draft standard on climate reporting is expected to be published in early 2022, and standards for other sustainability topics will follow. Similar changes are underway in the United States. As detailed in a prior WilmerHale alert, the Securities and Exchange Commission (SEC) is poised to release proposed climate and ESG disclosure regulations during the first quarter of 2022.

A global, uniform reporting system from the ISSB, to the extent implemented in other jurisdictions, would have many impacts: set companies’ expectations of what should be included in their disclosures; allow investors, stakeholders and philanthropists to easily compare enterprise value and corporate performance; and foster discussion about climate and social issues—with the ultimate aim of increasing corporate action on these issues, such as commitments to reduction of greenhouse gas emissions. For companies with international operations, ESG disclosures are an inherently global issue. New standards established by the ISSB (to the extent implemented in jurisdictions, as these standards are only guidance until adopted) and the SEC would ultimately require companies to implement more robust data collection and reporting structures. It is difficult to predict at this time what reporting will be required for companies, but it is almost a certainty that additional reporting will be required.

Takeaways

Many of the commitments emerging from COP26 align with the historic social and environmental legislation and executive actions enacted during President Biden’s administration, such as the January 27, 2021, executive order tackling the climate crisis. Both at home and abroad, there is a confluence of increased attention on environmental justice, corporate disclosures and climate change that likely will drive measurable changes in domestic regulation on these topics.

As President Biden returns from Glasgow, the federal government will likely continue to develop the administration’s commitment to reducing methane emissions and other climate “superpollutants,” expanding environmental justice initiatives, and developing ESG disclosure requirements. For example, the EPA already proposed performance standards for new and existing sources under the Clean Air Act, and additional methane-targeted rulemaking is anticipated throughout 2022.

US climate change policy under the Biden Administration will likely continue to influence and complement the international agenda. WilmerHale is at the forefront of advising clients in adapting to this changing landscape and preparing for what is to come in the United States and abroad.

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