What is the Paris Agreement?

The Paris Agreement is an international treaty within the United Nations Framework Convention on Climate Change (UN Climate Change) that was agreed upon in 2015 by 198 countries. These countries include the United States of America, members of the European Union, the United Kingdom, India, Australia and South Africa. The ultimate aim of the UNFCCC is to “[prevent] dangerous human interference with the climate system by [stabilising] greenhouse gas concentrations” (UN Climate Change). The intention is to slow down climate change enough to allow ecosystems to adapt to it naturally. This also provides countries with the opportunity to develop more resilient societies through mitigation and adaptation strategies, moving towards low-carbon economies and sustainable development (Climate Trade, 2022).

The Paris Agreement is governed by the Conference of Parties (COP) who is the decision-making body of the Agreement (UN Climate Change). The COP is made up of elected representatives of the countries that are part of the Agreement who meet every year to discuss, review and promote the implementation of the Convention and to assess the measures that Parties in the Agreement have been taking to achieve its goals.

Long-Term Goals of The Paris Agreement

Global Temperature

The Paris Agreement aims to keep the global average temperature increase to below 2°C and limit the temperature increase to 1.5°C to prevent severe climate change impacts (UN Climate Change). This requires technological innovation to allow for negative emissions to be used so that carbon emissions can be minimised and spread out over a longer period (Retallack, 2015).

Global Emissions

The second aim of the Agreement is to achieve net zero emissions by 2050 to reach global peaking of greenhouse gas emissions (GHG) sooner rather than later and begin rapid reductions as soon as possible (Retallack, 2015)

The private sector needs to look at how they can achieve net zero emissions as investors and consumers alike are looking to support companies that follow these objectives of the Paris Agreement.

Support from Developed Countries

Developed countries, categorised as Annex 1 (UN Climate Change), are tasked with shouldering a large portion of this responsibility due to their historical and current greenhouse gas emissions making up the majority of global emissions (UN Climate Change).

Finance

Developed countries must provide financial assistance to lower-income countries that are more vulnerable to the negative effects of climate change (UN Climate Change). This will contribute to the development of low-carbon economies in developing countries to help them adapt to climate change and build resilience (Retallack, 2015). This includes investment into the innovation of low-carbon technology which in turn will promote private sector investment.

Technology

Technology development and transfer are promoted by the Paris Agreement with a strong emphasis on low-carbon technology that will help reduce GHG emissions and build better climate-resilient societies (UN Climate Change). The Agreement provides a framework that guides the facilitation of sharing and developing this technology among countries.

Capacity-Building

The Paris Agreement also requests that developed countries contribute to developing countries’ ability to build capacity for managing the negative effects of climate change (UN Climate Change).

Nationally Determined Contributions (NDCs)

Each of the 195 countries that are part of the Paris Agreement are required to report their nationally determined contributions to achieving the goals of the Agreement every five years (UN Climate Change). This allows countries to create and maintain actionable plans to achieve the long-term goals of the Agreement and develop low-carbon economies. The implementation of net-zero emission plans, as outlined in countries' NDCs, will create new investment opportunities for the private sector in low-carbon economies

The NDCs ensure that the progress reports produced every two years on countries’ climate change plans use the same methodology to encourage accountability and transparency, aiming to make each new report progressively more ambitious (UN Climate Change). It also allows countries to share information with businesses about regulations, legislations and policies. This helps the private sector adjust to the evolving regulatory framework and informs planning and investment.

Global Stocktake

Along with the acknowledgement of countries to reduce their greenhouse gas (GHG) emissions, they are also required to adhere to a Global Stocktake which will occur every five years from 2023 onwards (UN Climate Change). The Conference of Parties, the governing body of the Paris Agreement, will assess the collective progress of global efforts to achieve the long-term goals of the Agreement. This is to incentivise countries to meet their long-term targets and to update and develop their plans.

Shift Towards Low-Carbon Economy and Sustainability and the Impact on the Private Sector

The Paris Agreement is an indication that companies need to move towards a low-carbon environment and long-term sustainability to keep up with the rapidly changing landscape of the world (Wallens, 2016). Climate change is disrupting the value chain and the private sector needs to adapt and become more resilient to these changes so that companies can still grow into the future.

Although much of the Paris Agreement is not legally binding, the private sector needs to keep up with domestic regulations as countries adapt their NDCs into regulatory action. The core business products, services and investments of companies within the private sector need to be re-evaluated to ensure that they are aligned with the shift towards sustainability and that they are resilient to climate change (Wallens, 2016).

The private sector is a major component in achieving the goals of the Paris Agreement as companies can be drivers of change with the added benefit of gaining positive market sentiment (Atkins, 2023)

Market Response

There is a significant shift in the market response as more investors and consumers are considering sustainability in their decision-making, especially Gen Z and Millennials. Consumers are willing to pay more for sustainable goods and are motivated by advertising that promotes sustainability and leans towards impact investing (Atkins, 2023). Sustainability in goods, services and investments are increasingly becoming priorities and the private sector needs to keep up with the demand.

Risks

Because of how reliant the world is on natural systems, financial stability now, and in the future, is reliant on adapting to climate change (Indexology Magazine, 2021). If companies can become more resilient to climate change they will be able to mitigate the risks associated with it. Some of these risks are “infrastructure and property damage (i.e. buildings burning down as a result of wildfires), operation and supply chain disruptions, power-shut offs, increased resource costs, business closures, increased insurance premiums, and market shifts” (Sheldrick & Global Citizen, 2023). The risk is even higher for companies in the energy, industrials, materials and utilities sectors as their corporate assets have the highest risk of financial losses in the coming years.

Companies that do not adapt to the changing landscape and rely on fossil fuels will fall behind their peers and negatively impact their ESG ratings.

Opportunities

There is potential economic benefit if the private sector can align its goals with those of the Paris Agreement (Wingenroth, Prest & Rennert, 2023). Low-carbon technologies and services will become an increasingly more desirable market as the negative effects of climate change continue to increase which will stimulate investment, revenue and job creation. Adapting to climate change will also make companies more resilient to the risks associated which promotes the longevity of companies and their assets.

Regulatory Framework

To adhere to the Paris Agreement, governments will need to pass laws that align with the goals of the Agreement. Many countries have already set these laws in place and have regulatory frameworks that the private sector needs to adhere to. These laws will force the private sector to reduce its carbon emissions (Climate Trade, 2022). As a result, companies have to adjust the way they operate to these regulations. An added layer is that they are not uniform across the world as the Paris Agreement allows countries to set their standards which makes the sustainability and ESG reporting process for the private sector difficult. This is particularly difficult for companies that operate in multiple countries and need to adhere to multiple frameworks.

Using ESG Solutions to Adapt and Advance

As established, the Paris Agreement influences the complexity of corporate ESG disclosures because of the various regulations each country has in place to achieve its NDCs with mandatory requirements becoming increasingly more common.

Disclosures need to be consistent and transparent and there needs to be a thorough analysis of a company’s ESG standing. Despite the Paris Agreement focusing on GHG emissions, the push from regulatory bodies is for a greater ESG emphasis overall in the private sector where GHG is only a small category within the greater ESG landscape.

Companies need to transform their organisations to operate more sustainably where resources are used efficiently and emissions are reduced (World Economic Forum, 2022). There needs to be a greater cultural shift within companies where departments have to collaborate to collect the necessary data and develop solutions that contribute to upholding human rights in the company’s operations, diversity and equality are promoted and the health and safety of employees are prioritised. Corporate governance also needs to emphasise business ethics. These factors of ESG, and many more, have to be taken into account to adhere to regulations in specific regions.

To achieve this, companies will have to improve and optimise their data collection by using technology so that they can analyse their communications more efficiently. Sustainability has to have a strategic approach that identifies the internal gaps within organisations for improvement (World Economic Forum, 2022). This also requires companies to emphasise collaboration between departments so that processes and controls are established that maintain and uphold a certain level of corporate responsibility. Companies can positively impact their brand perception by maintaining ESG standards and gaining better ratings. Following sustainability guidelines and suggestions and communicating this through reporting and other company channels can contribute to the alignment of company values. It emphasises the company’s commitment to the environment, its employees and its customers.

Sustainability solutions, like Eunoic, that contribute to company value creation can simplify the reporting process and contribute to better brand perception and compliance. Eunoic provides leading global companies with ESG solutions by using AI to enhance their sustainability priorities, performance and perception. To do this, Eunoic identifies sustainability factors that need to be prioritised because of the impact they have on company value. Market-specific benchmarks, ESG factors driving stock performance and custom targets are provided to companies to inform where company value can be improved.

Company performance can be improved using Eunoic’s self-assessments of reports and websites. This enhances sustainability results, highlights improvements and is facilitated by strategic action plans to help achieve sustainability goals. Expert training courses are also provided to support companies with the knowledge, skills and tools to make the most of what Eunoic has to offer and to stay ahead of the competition.

By using the tools that Eunoic provides, company perception can be positively impacted by report and website creation in minutes to follow international best practices and frameworks. Communication analyses of reports and websites using AI analyses promote reputation and brand value to improve messaging and attract investors. Real-time sentiment monitoring assessing news and social media sentiment allows companies to proactively monitor emerging ESG issues and reduces the risk of harming brand reputation.

Eunoic improves efficiency, efficacy and, in turn, company value, ESG ratings and compliance with regulatory frameworks. As such, companies like Eunoic can help the private sector adapt to the changes caused by the Paris Agreement and any regulations within the ESG landscape, and develop resilience to climate change and the ever-changing regulatory landscape.

Resources

Atkins, B. (2023). The Paris Agreement and its Impact on Corporate Climate Action . Forbes. https://www.forbes.com/sites/betsyatkins/2023/10/13/the-paris-agreement-and-its-impact-on-corporate-climate-action/?sh=51729c1538ea

Climate Trade. (2022). How does the Paris Agreement Affect the private sector? Climate Trade. https://climatetrade.com/how-does-the-paris-agreement-affect-the-private-sector/

Indexology. (2021, May 14,). A Matter of Degrees:Aligning ESG Strategies with the Paris Agreement. Indexology Magazine, , 1-4. https://www.spglobal.com/spdji/en/documents/education/indexology-magazine-spring-2021.pdf

Retallack, S. (2015). The Paris Agreement: What does it mean for business? Carbon Trust. https://www.carbontrust.com/news-and-insights/insights/the-paris-agreement-what-does-it-mean-for-business

Sheldrick, M., & Global Citizen. (2023). New Data Reveals Climate Change Risks To Corporate Assets In The United States . Forbes. https://www.forbes.com/sites/globalcitizen/2023/07/16/new-data-reveals-climate-change-risks-to-corporate-assets-in-the-united-states/?sh=404e982c463e

United Nations Climate Change. (a). Conference of the Parties (COP) . United Nations Climate Change. https://unfccc.int/process/bodies/supreme-bodies/conference-of-the-parties-cop

United Nations Climate Change. (b). Key Aspects of the Paris Agreement. United Nations Climate Change. https://unfccc.int/most-requested/key-aspects-of-the-paris-agreement

United Nations Climate Change. (c). The Paris Agreement . United Nations Climate Change. https://unfccc.int/process-and-meetings/the-paris-agreement

United Nations Climate Change. (d). Parties to the United Nations Framework Convention on Climate Change. United Nations Climate Change. https://unfccc.int/process/parties-non-party-stakeholders/parties-convention-and-observer-states?field_parties_date_of_ratifi_value=All&field_parties_date_of_signature_value=All&field_parties_date_of_ratifi_value_1=All&field_parties_date_of_signature_value_1=All&combine=

United Nations Climate Change. (e). What is the United Nations Framework Convention on Climate Change? United Nations Climate Change. https://unfccc.int/process-and-meetings/what-is-the-united-nations-framework-convention-on-climate-change

Wallens, Z. (2016). How the Paris Climate Agreement Impacts CSR and the Private Sector. business wire. https://blog.businesswire.com/how-the-paris-climate-agreement-impacts-csr-and-the-private-sector

Wingenroth, J., Prest, B. C., & Rennert, K. (2023). The Economic Benefits of Achieving the Paris Agreement Goals. Resources for the Future, 23(08), 1-5. https://media.rff.org/documents/IB_23-08_v2.pdf

World Economic Forum. (2022). 4 ways ESG disclosures are transforming how successful companies operate. World Economic Forum. https://www.weforum.org/agenda/2022/09/4-ways-esg-disclosures-transform-companies-operate/