How does the Paris Agreement affect the private sector?

Paris Agreement

Still unsure about how the Paris Agreement affects businesses? This article breaks down the main ways the private sector is influenced by this international sustainability agreement.

About the Paris Agreement

It is an agreement within the framework of the United Nations Framework Convention on Climate Change that establishes measures for the reduction of Greenhouse Gas (GHG) emissions through mitigation, adaptation and resilience. It establishes as main objectives:

  1. Limit Global warming to 2ºC and the closest to 1.5ºC, reducing greenhouse gas (GHG) emissions.
  2. Increase the capacity of countries to adapt to the effects of climate change and build resilient societies, that is, that can resist these effects.
  3. Promote the transition towards low carbon economies and towards sustainable development.

Together with the 2030 Agenda, it projects an integrated vision towards a sustainable world, focused on the well-being of people, the preservation of the planet and peace.

Its entry into force implies a profound structural transformation in our society. However, climate action does not depend only on governments but is the duty of citizens, financial institutions and the private sector.

How much can the business sector contribute to the Paris Agreement?

According to the We Mean Business Coalition report, the commitment of companies around the world would amount to 60% of the GHG reduction of the total established in the Paris Agreement. This represents a reduction by 2030 of 3.7 billion metric tons of C02 per year.

CO2 emissions offsetting

To achieve the goal of reducing emissions, a GHG emission rights trading scheme is established by which polluting companies have the obligation to offset the emissions derived from their activity by purchasing carbon credits from developers of projects to reduce carbon emissions. Rules about the trading of credits to offset GHG emissions such as recycling plants, renewable energy projects, forestry projects, energy efficiency, etc, were partially clarified at COP26 in Article 6 of the Paris Agreement.

Currently, there are mandatory regulatory measures for companies to progressively establish environmental policies related to climate change.

Regulatory framework

In Spain, on December 7, 2018, the Ecological Public Procurement Plan of the General State Administration, its autonomous bodies and the managing entities of Social Security (2018-2025) was approved.

This plan establishes that all companies contracted to carry out public works must have approved quality systems that can contribute to achieving better environmental sustainability. Governments committed themselves through the Paris Agreement to reduce their emissions to zero by 2050, and this implies that measures such as the previous one will be implemented in the different sectors to push private sector companies to adopt environmental policies related to climate change, the use of resources and sustainable production and consumption.

In September 2021, the UK also added environmental criteria to its public tender selection process for contracts of more than 5 million pounds, among which the delivery of a carbon reduction plan.

Sustainable Development Goals

Along with the Paris Agreement, the Sustainable Development Goals (SDGs) are another set of rules meant to help the world become more sustainable and equitable. This too needs to be integrated into businesses.

At ClimateTrade, we support companies in the implementation of their sustainability and decarbonization strategies. Get in touch with our team to discover our solutions.

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