What do the COP26 outcomes mean for business?

In November 2021, heads of state, climate policy experts, negotiators and observers, development finance institutions, humanitarian agencies, private sector and civil society convened in Glasgow for the United Nation’s 26th Conference of the Parties (COP). As the UN’s flagship annual climate change forum where countries debate and agree efforts to mitigate climate change through the reduction of greenhouse gases, every COP matters. But this COP mattered more than many before it.

COP26 has been widely billed as perhaps society’s biggest opportunity so far to slow climate change. Did it succeed and how should industry respond? Our expert panel share their views on what the outcomes mean for business and finance.

Diana Fox Carney: Hello and welcome to this Willis Towers Watson post-COP briefing. Today we're going to get to grips with what was said, but what it means for business and finance going forward in the next few years. I'm delighted to be joined by a great team here today, some of whom were here on our pre-COP briefing, so we'll be able to have a bit of continuity. We have Rowan Douglas, Justin Mundy, and Pete Betts with me. And later on, I'm going to introduce Matt Scott. But let's first of all just go around and give people a little bit of context who you are and what your role is in Willis. So let's start with Rowan, because he's first on my screen.

Rowan Douglas: Hi, Diana, great to be back with you. Yes, Rowan Douglas. I look after the Climate and Resilience Hub here at Willis Towers Watson and also chair the operating committee of the Insurance Development Forum and was lucky enough to be in Glasgow for about 10 days, I think. So great to be back with you online.

Diana Fox Carney: Fantastic and I should have said who I am. I am Diana Fox Carney, and I'm a strategic advisor with Willis Towers Watson, as is Justin Mundy. Justin, tell us a bit about yourself.

Justin Mundy: Diana, thank you very much. Lovely to be back. I am Justin Mundy. I am strategic advisor also to Willis Towers Watson. I'm also chair of a small asset management company called SLM Partners, and I'm a Distinguished Fellow at the World Resources Institute.

Diana Fox Carney: Fantastic. Well, thank you for being here. And Pete?

Pete Betts: Hi Diana, it's great to be here. So I am also a strategic advisor at Willis Towers Watson, and was for many years, a government official in charge of international climate energy. And I spent six years as the lead negotiator for the European Union in the climate talks, including in Paris.

Diana Fox Carney: So I guess the first question really should be for Pete. What was it like to be at COP and not be negotiating?

Pete Betts: It's delightful not to be negotiating. The only caveat is that I tested positive for COVID on the middle Sunday, so I watched the second half of COP from my hotel room.

Diana Fox Carney: Yes, that's the untold story of COP, I think. Well, hopefully, there wasn't too much, but glad you're back and fit and healthy. So guys, everyone was at COP, I was that COP. Can you just give us one or two quick observations about it? Many of the audience will already have had been present at COP roundups, so we're not looking for exhaustive results. But what were your top takeaways? So I'm going to reverse this time and start with Pete.

Pete Betts: So I thought the COP received mixed reviews. I think on the whole, it did well given challenging politics. I thought the negotiated outcome, things like learning the rulebook or things like the carbon market transparency, getting a first mention of fossil fuels, getting this annual review process – that was pretty well at the top end of expectations, and that was the thing the press focused on. The other thing it was meant to do was to raise country ambition both for 2030 and for mid-century net zero goals. I think there it was a mixed picture, so we got new targets for 2030 at the sort of top end of what I thought was possible from most of the big developed countries with the exception of Australia. We'll have to hold those countries to account for delivery. But we got very little from the big emerging economies, and that is a concern, because that affects the overall level of ambition of the trajectory we're on. And that's one of the reasons this moment to come back to the table next year that was agreed at the COP is so important.

Diana Fox Carney: Fantastic. Yes, I think that Egypt COP, COP27, is going to be a huge challenge. There's not much time and high expectations for what that needs to achieve. Justin, what are your thoughts?

Justin Mundy: Well, two really, in addition to Pete's. First is that this was the first time that the private sector was really there en masse. It hasn't been before. Beforehand, it's been fairly sporadic attendance. But in the absence of a leap forward by the public sector, there were a number of very substantive private sector commitments with a lot of money on the table, which has never really happened before.

And the second positive thing is that having actually also been a negotiator for the EU and the UK but at COP6 – and it's COP6 bis and COP7, so a long time ago – where we spent a lot of time talking and defining what a tree was for climate change purposes with some success, eventually. But here at COP26, there were significant pledges on forestry, there was significant recognition of nature-based solutions, there was significant inclusion of ocean factors too. So the dichotomy of climate change and everything else was somehow breached, so we actually did have an inclusion of finance, regulatory issues, private sector, and nature as being a unified set of issues which had to be addressed in a coherent way, some are more advanced than others. But at least now, most of the bits that we need to think about are on the table. And that's a first that hasn't happened before.

Diana Fox Carney: Thank you for that, Justin. Rowan?

Rowan Douglas: Well of course, Justin and Pete have taken all my best lines, and I haven't quite done as many COPs as they have. I have been to one or two before. But for me, three big things. One is on the mainstreaming in private sector finance and business and economics. I think we had sensed probably that Glasgow would be the Paris equivalent for business and finance, and it absolutely was. Partly, as Justin said, because of the people who were there and the importance, but also because in concert, and it had built over a number of years, there's been so much related regulatory developments, which are also many announcements around the same time in the mobilization that Justin said of initiatives on both net zero and resilience. So definitely that, and I think we mentioned in some of our coverage how appropriate in not quite the home of Adam Smith, although he was a professor in Glasgow, but the invisible hand is being retrained. And I think this was definitely that.

So that was the first thing. Second thing is the world of resilience and adaptation, both within the private sector side, but particularly in the inter-governmental side, had much greater emphasis, and I wouldn't say parity, but it was no longer kind of an afterthought. And that also ties into this theme that you'll probably touch on a bit later on around something called loss and damage, which is essentially how are we going to support, particularly developing countries cope with changes to which they cannot adapt to. And I think that's clearly on the road to Egypt. We're already on the road to Egypt having been to Glasgow, that's going to be very significant. And that's going to be important for all of us, particularly anyone involved in finance generally, but particularly, of course, insurance.

I suppose the final thing, and maybe it touches slightly on the first point, but there was absolutely no doubt about the sense of urgency. I haven't sensed that before. And I know that's a culmination of many other things that have been happening far beyond the COP process and what happened at COP. But both the urgency and also, the mainstreaming of the coverage of COP was unlike anything that has happened before. And you had no doubt that there is a sense that this is an emergency that has to be dealt with – of course, issues and concerns about where, how, who, and how much. But I think that was what really struck – that sort of collective sense of urgency. And that certainly seems to have cut through the both public as well as private sector communities. But those are my takeaways.

Diana Fox Carney: Well, I think that was a really comprehensive round-up. And you touched on this Rowan, but the question then becomes, what does all this mean? I mean, COP concentrated everyone's minds, it elicited pledges across a wide range of sectors. Money came to the table, we have new alliances and lots of different things. Now we have to put meat on those alliances, now we have to see what is meant, what is acceptable under some of these broad agreements, what is the kind of behavior that's going to be prescribed. And there's nowhere where that's more clear than the idea of net zero targets. Net zero targets for countries – a vast majority of countries now do have, or a vast majority of emissions are now covered under, net zero targets 2050. Obviously, there's a great urgency that we front load and get things done early and meet our sort of 50% by 2030 goals, or approximately 50%. But there's also company targets.

So that's where I want to turn to now. What does it mean for companies and finance. And to start us off on that, I'm going to invite in Matt Scott. Matt can introduce himself more fully. Matt works with us at Willis Towers Watson and he really is extremely knowledgeable in the area of metrics and regulation and what the zeitgeist is on thinking about how we measure our progress to net zero. So welcome Matt, thanks for joining us. Perhaps you could just tell us a little bit about yourself and then get going on the topic.

Matt Scott: Great. Thanks, Diana. And great to be here. Thanks for the kind words by way of introduction. I'll hopefully live up to that. But yeah, I think just to reinforce some of the themes that obviously have already come out of the conversation so far, the real mainstreaming of finance at this COP. I do remember I had the pleasure of being at the Paris COP as the TCFD task force was launched, and I think at that stage, felt I knew most people in the room or at least most sort of central bankers and supervisors in the room. And obviously, now there really is a big mainstreaming. And also to Rowan's point, I think a real seriousness to the significance of climate risks and the systemic risks that they bear on the financial system. So a real structural and system-wide transformation that's underway.

Maybe to highlight just a few things there I think it was really notable that The Network for Greening the Financial System has now reached 100 members. And it was only actually in 2018, I had the pleasure of being at the first meeting with the sort of eight or nine central banks sitting around the table. So to grow to 100 in the space of a few years, I think for central banks to move at that pace really shows just quite how significant the issues are. And obviously, that's representation now across the whole globe. Clearly, we also saw a real step change in private sector commitments. So the 130 trillion that is now committed to net zero finance, and a really substantial commitment from the UK chancellor in terms of a net zero aligned financial system. So again, that was a huge step change in terms of net zero.

And then more broadly, lots of things going on around reporting standards. So the International Sustainability Standards Board and the integration really, of mandatory climate disclosure and the sustainability disclosure across the whole system. So it really is a system-wide change that has actually evolved really rapidly. And we'd be happy to share some thoughts in terms of what that might mean for some of the metrics and some of the ways that financial firms might want to consider responding to that if that's helpful.

Diana Fox Carney: I think that would absolutely be helpful, because we have obviously TCFD, you referred to that. But that is about the relationship between the risks out there and the impact on companies. And also, net zero is about how companies reduce their impact on the climate, on the environment. So can you talk about how those two sides and thinking is coming together and other thinking a little bit about portfolio warming metrics, how we define Paris-align finance, all these other buzzwords that we hear and what they mean?

Matt Scott: Yeah, certainly. I'll have a go. I think is quite a multi-dimensional and complex landscape at the moment. And it's something we looked into we have the pleasure of being part of something called the Climate Financial Risk Forum, which is being put together by the Prudential Regulatory Authority here in the UK and the Financial Conduct Authority. We helped to co-lead the group on data and metrics along with many other banks and insurers and financial institutions in the UK. And I think what was interesting is taking a step back and sort of almost delineating the different aspects now of what firms are trying to do. And it seems that we've got a number of things going on. So firstly, the need to manage and disclose the financial risks from climate change. And I think it's important in that to be clear that whilst carbon is being used as a helpful proxy for transition risk for example, the financial risks from the transition actually in some ways can be quite disconnected from a carbon footprint. So for example, in some industries, a carbon price might be passed on. Or if you're holding carbon in Saudi Arabian oil, it's going to have a very different set of exposures to Canadian tar sands. And actually, as you get into the detail of carbon reporting, you're actually finding that a lot of service sector companies may well report low carbon emissions, because of the nature of how scope 3 works, but actually could have quite significant exposures to both transition risks and be enabling a high-carbon economy.

Diana Fox Carney: Matt, just for the audience's sake, when you say high exposure to transition risk, just describe what you mean for a service company what a transition risk might look like.

Matt Scott: Yeah, certainly. So I think for example, if you're a service company and you're providing services to the fossil fuel industry, then often, you may still be disclosing quite a low carbon footprint, because the service sector generally discloses less of a carbon footprint than if you're actually making things. But obviously, if you take two software companies for example, they might both be disclosing quite low carbon footprints, but one software company might be serving energy efficiency and have a tremendous upside from the transition. And another one might be servicing oil exploration and obviously be exposed to quite significant risks from the transition in terms of its business model.

And similarly, I guess on the other side, you could well have some industries in the hard-to-abate sectors, be it cement or sustainable aviation or steel and innovative companies that are actually solving some of the hard-to-fix problems that could actually have quite a high carbon footprint. But obviously, could also be really important in terms of enabling a low-carbon economy. So I think what we're finding is as you get into the details of that, then carbon, whilst it can be used as a proxy, it's not necessarily the full picture in terms of your exposures to the financial risks or the extent to which a company is actually enabling either a high or low-carbon economy, if that makes sense. So I think what we found in the Climate Financial Risk Forum, again, was that there's things going on in terms of needing to manage the financial risks. Secondly, there's obviously important and really valuable things going on in terms of meeting portfolio decarbonization or aligning your portfolio with Paris. So sort of temperature scores and other things that are a second element of what firms are starting to report on. But then I think there is also this sort of third element emerging around for example, in the UK under the stewardship code, there's a need to address systemic risks. And obviously, that lends itself to how you might be supporting the economy to transition. So obviously a way to accelerate the transition in the real economy is things like mobilizing financing to solutions, and maybe pursuing an engagement strategy rather than a divestment strategy that might be important. So I think at the moment, there's a need really for firms to be considering all of these things. How they're property pricing and managing the risks of climate change, how they're also then decarbonizing their portfolios to meet their net zero targets. But also importantly, what they're doing to support the economy to transition, and mobilizing finance into some of the solutions we need. And obviously, some of those solutions, as I referred to, may actually be quite high carbon.

So I think this is really why in the Climate Financial Risk Forum, and I'd really recommend people to maybe check out the publication – it's all available online – to try to provide practical guidance around this. We really recommended a dashboard of measures across these categories of looking at the risks, looking at your impact on the environment, and how your decarbonizing. But then also considering the activities you're doing to help accelerate the transition in the real economy such as engaging and mobilizing financing to the solutions that we need.

Diana Fox Carney: Fantastic. Thank you so much, Matt. Thanks for being with us. Thanks for sharing that. It gives a sense of the complexities, but also, I guess, the challenge that firms are facing. And I'm going to say goodbye to you now – thanks for being with us – and ask Rowan how you think firms can best prepare for the types of things that Matt has described. What are the kind of practical things you do when you get up tomorrow to be in a good position?

Rowan Douglas: Absolutely. Yeah, we're trying to help create a kind of a checklist for what most companies should be thinking about of having by this time next year. And the remarkable thing about this issue is that there are different rhythms and flavors around the world, but how remarkably consistent this revolution is around the world. And Matt touched to the fact how central banks and governments are sort of coordinating in a way. I've been in the finance world for 30 years, I've never seen this before in anything.

So by this next year, I would say every company should have either produced or be preparing to produce a TCFD return. This is this famous thing called Task Force for Climate-Related Financial Disclosures. I say that because it will be mandatory in many jurisdictions very, very soon. And in fact, I think in the UK, it will be mandatory next year and New Zealand and others. But by 2025, this will become a mandatory standard in most G20, certainly G7 economies. But even if it's not a mandatory standard, it will be expected as a part of necessary housekeeping from stakeholders. And that forces companies to address and answer some of the questions that Matt just said – what is your exposure to physical climate risks, storms, rising temperatures, all the rest, now and into the future. Equally, your exposure to transition risk that Matt just described. And also even – and it's a little bit around the corner, but it's coming – legal liability exposures. Now most of us can't do that ourselves, because we will need help from advisors and support, because it's all new. And you will do your first assessment. And the biggest challenge usually is actually getting the data you need about your own organization to be able to actually do the analysis. Actually, the wider stuff about what's going to happen to the climate, that tends to be the easy bit. The hard bit is actually getting the stuff you need about yourself to do the assessment. Now that isn't just a box-ticking exercise for compliance, although it does have those attributes, because actually, from that TCFD requires you to start thinking about what is your strategy to address this new environment. In a way, the risk is there, but now it's becoming explicit. And will all have to answer these questions to stakeholders, investors, regulators, our own employees, our boards. So this is just a necessary thing that we will all have to do. And many of us haven't started yet. Many of us have started, but it will have to develop and improve.

The other thing I would say, that if you haven't already – if you're a CEO, I would say turn to some of your colleagues and say, what can we commit to in terms of a net zero transition. And if you're not the CEO, be expected to answer that question very, very soon, because most companies will have to start, if they haven't already, to make those sorts of commitments about their own operations, or as Matt just said, around their business. And these are really hard questions to answer. And the first thing is to have done the assessment of the nature and risk of your business. But there are other things. For example, we might go onto it in a moment, this area around trading carbon and carbon markets for many will be important and is about to become quite serious. So we're all going to have to start doing our homework. But I suppose the overarching message is the phoney war is over. For me, Glasgow was the inflection point that this is sort of a slightly specialist side issue or enthusiasm activists to this is now on the main exam syllabus for companies and financial institutions. And we all have to wise up, because it's an exam we'll have to pass. And when countries say, they are going to reduce emissions in their economies by 50% basically by the end of this decade. That is a massive change that's going to affect all of us. We may debate whether we will achieve it or not, but I came away from Glasgow knowing that many, many countries are very serious about going down that pathway, and we're all going to then face these challenging questions. So it's a wake-up call, and many of us over the holiday period, will be doing a lot of homework and reading.

Diana Fox Carney: Thank you, Yes. And strategic thinking, I hope. Let's get to that point about the carbon markets. And I'm going to bring in Justin and Pete here. When we think about the carbon markets, we're really thinking about how to trade units of carbon, and to really find the most cost effective way for achieving net zero. That's the purpose of the market – is to enable reductions in the most cost-effective way.

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...money to decarbonize in developing countries is lacking, certainly at an official level, and it's also difficult to invest at a private sector level.”

Diana Fox Carney | Strategic Advisor, Willis Towers Watson

They also potentially, the voluntary carbon markets, are one mechanism for ensuring that money gets to developing countries, which was a big underlying concern at COP26. And as we know, the developed countries still were unable to fully commit $100 billion a year, which was the goal. So money to decarbonize in developing countries is lacking, both certainly at an official level, and it's also difficult to invest at a private sector level. So the carbon market solved a number of problems. They featured highly in COP26, as we know, because there were issues about what's called Article 6, which is the rulebook associated with how these things can be used. I would like to turn for a little bit of clarity first to Pete to describe what it means or what the implications of having agreed the Paris rulebook are. And then I'll turn to Justin for a little bit of discussion about what kind of things can be traded in the carbon markets.

Pete Betts: Thanks, Diana. So the carbon market to an economist, makes sense that you do abatement where it's cheapest. But it's always been quite contested in the climate community by some. Some oppose it ideologically, because it's monetising the environment, but others worry that we'll end up double counting the same ton, so where a country buys a commitment from another country, but both countries count it, so it's double-counted. And there's also risks, perceived risks that where a country buys say, a forest offset, that reduction in deforestation say, maybe just displaced in another area. So it's always been quite a sensitive area and one that sort of needs regulation. What was achieved in Glasgow was there was finally agreement that where the carbon market is used between two countries, there should be so-called corresponding adjustments. In other words, if UK buys from Colombia and adds its tons to its inventory to show that it's made those reductions, that they would be subtracted from the Colombian inventory so it's not counted twice. There are other safeguards built in as well. So I do think that's a useful step, and should start to provide the basis for the carbon market to be used more widely. But there are however, additional issues, because there's also this thing, as others will know, called the voluntary market, where companies set net zero goals not in pursuit of some regulatory obligation. They do it for corporate reasons or because they want to do the right thing. And use of the voluntary carbon market are not covered by this Article 6 deal. But there is a risk for companies wanting to use the voluntary carbon market that there will be kind of norms and expectations that they should use these arrangements, even though they're not required in the voluntary market. So I don't think we're all the way there yet to give companies the kind of confidence and assurance they need in all cases to use the carbon market. There is more work going on.

So another concern, let's use an example, an oil and gas company, what they shouldn't do is simply buy offsets wholesale whilst continuing with their existing business model. If offsets are being used as part of an overall transition to help manage that transition, then that's OK for many in the climate community. So I do think there's been progress, but there's still some continuing uncertainty which will have to be clarified in the months to come to give companies the assurance that they're not going to face reputational risk from using carbon markets.

Diana Fox Carney: Thank you, Pete. Justin, perhaps you can comment a little bit on issues of quality around the offset, whether anything was done at COP to assure that, and what you see as the issues, particularly in a nature-based offset area.

Justin Mundy: I think as Pete said, there's still some way to go on this. There has long been a debate around the durability and permanence particularly of forest-based offsets. So if you are claiming offsets by afforesting then there is a degree of sequestration there, that actually, how long is the carbon going to be in the tree. There are attempts to try and see if agriculture can be brought into this. But at the same time, agriculture has the same issue of durability. So if you manage to store carbon in the soil for two or three years, is it still there in year four, and particularly if you change the management. So there are lots of issues around that.

Also, again from the forestry side, there's a degree of uncertainty, actually, around the entire carbon metrics in terms of how much carbon is there in trees, how much is there in soil. And that whole issue of soil carbon and biomass is incredibly difficult to get straight. So we're starting to get a level of clarity on the basic sort of the physics and the biology of land-based carbon, which hasn't been there before.

The second part of it I think is, and perhaps the most important really, is Pete's point about carbon offsets being used for a net zero target because of some of the uncertainty around how carbon can be valued or defined – carbon offsets. We won't get very far at all if people just offset their carbon, but don't change their business model. And therefore, there's a strong feeling that companies should be quite severely encouraged to have a transition pathway which is really focused on technology change in a very clear, yearly milestone way. And that those milestones should be based on science-based targets, so you have a clear indication of what it is, what the impact of your company's business is.

And then having taken those steps, there is a whole bunch of carbon emissions which you just cannot change, because the technology isn't yet there. Then using a carbon offset for that bit is, as Pete said, sort of more acceptable. So I think we have to be quite careful that there isn't a free-riding process. And also because the uncertainty still, as Pete has mentioned in terms of how voluntary carbon market offsets are going to be accounted. And it is not helpful if you have a number of different carbon offsets claimed by different owners at different times. Nor actually something unhelpful, which wasn't resolved at this COP, was how the credits from a previous carbon trading regime, the Clean Development Mechanism, are actually now hanging over into this period. So it just means that there's a degree of buffer which perhaps we can't really justify from where we are in terms of the science. So there are reputational risks here.

I think also just to refer back to something Rowan has said, it's important now to think that as every company is going to be required to have a TCFD sort of activity, and increasingly, with something called the Task Force for Nature-Related Financial Disclosures, which is emerging too, and will become also equal parity, we hope, in two or three years to TCFD, two things come from it. First is that if as a company you are not doing that, then arguably, using the excuse of fiduciary responsibility to maximize your earnings whilst not taking nature a risk which is known, becomes a very hollow excuse not to take action. And if you are not taking your fiduciary responsibility seriously by taking notice of an action towards mitigating risk, then that puts you in peril of non-compliance across a whole range of things, which certainly as Rowan said, if you are a CEO, you need now to be very cognizant of this.

And the second bit of this is that across the, as Matt Scott was saying, this is something which is not just happening in COP26. It's happening in G7 and the G20, it's happening with the central banks, it's happening across the regulatory framework and the public and the private sector. And there are things like the SFDR the Sustainable Finance Director for Reporting in Europe, there's the European Central Bank requiring banks to stress test against climate, the central bank here in the UK to do the same thing. To be caught short of actually falling adequate in your stress testing to climate change is going to be another significant reputational risk, and perhaps an expensive one. Because the other thing which has emerged, I think, in the last six months have been a number of actions by the rating agencies to start to proactively think about how not being in compliance with a transition pathway, what that does both the your rating, but also your ranking, and therefore, your access to capital and the cost of capital should you be able to get it. This is where things – and Rowan will be able to talk far more about this – but the announced US, UK, and EU infrastructure pathway with five principles for infrastructure investment, these will need to be built upon criteria of resilience. And those criteria of resilience will have a significant crossover into what the TCFD is doing, and therefore, the cost of capital. So not to pay any attention to this, it's soon going to be probably financially pretty expensive and reputationally potentially very, very important.

Diana Fox Carney: Thank you. I think you all made the point very clearly that climate is absolutely core to the way the business, well it's core to everything, but to the business and finance world, there is not a place anymore for those who don't consider climate. And they can't legitimately claim that your fiduciary responsibility suggests you don't take it into account. In fact, most would argue that it requires you to take into account these risks. Just one piece that that's come up. There was an issue in COP, was not resolved, was the question of loss and damage. And as you know, that was an issue at a country level that the developing countries wished the developed countries to pay them to compensate them for the damage that they are experiencing that they themselves are unable to deal with that they're experiencing as a direct result of our polluting activities over the years. Now that sort of taking of liability was not resolved at a country level, and I think I was a little surprised in a sense that there wasn't more progress on that. But what I wanted to link that to was this issue of climate liability, which is an increasing risk across the board, it seems to me. And we've seen litigation with Shell and other big companies that have been litigated on, even when they are making progress they're not doing enough. So just thinking about the people on this webinar and the consequences of this change world for their day-to-day decisions, do you have any advice around how to prepare yourself, how to avoid basically that litigation risk, and what you should do in that space? Rowan, you're smiling. I'm going to bring you in.

Rowan Douglas: I'm smiling because I thought through the video, you were looking at me. I'll take this on and give Justin and Pete time to think about their appropriate answer. And there were two slightly different questions, one around loss and damage, I'll touch on that. But then I'll flick the ball to Justin and Pete, who could probably speak at more eloquence with that. But then I'll touch on the first one, which is how should corporate and financial players think about climate liability.

I think there's two aspects. One is that the area that gets all the press, if you like, is particularly around fossil fuel companies and their potential liabilities for things, particularly in the past. And it's probably beyond my legal skills to give too much commentary on that, but I would say that we have all benefited from a fossil fuel economy. Most of us in the world, whatever it is, the 8 billion of us, would not be here if it wasn't for the fossil fuel economy. I think where industries are struggling with respect to their previous actions is where they have seemingly misled wider audiences around what they knew and when they knew it. So that is, if you like, the pattern, I think. And I think that gives a signal to where all of us should be thoughtful about going forward. So obviously, being involved in insurance company or insurance broker and advisor, we worry and help companies with directors and officers' liability – all sorts of professional liability. So I suppose the key thing with this area is in principle, in general, be straightforward. Where companies will be challenged is if they don't understand that this is now a risk, and like all risks, they need to be properly understood, managed, and disclosed. And generally speaking, if one goes down the pathway of being straightforward – and of course, there are issues, because sometimes, we're learning things about our companies, and we don't want to be able to have to disclose it until we're ready that we understand these issues ourselves.

So of course, I recognize what I'm saying – I'm speaking generally. But absolutely, I think the principle is to be as clear and as straightforward and as transparent when one is ready and feels that the information one has is sufficiently accurate and dealt with relative to uncertainties. Because where climate liability in a corporate and financial space is coming is, if you like, increasingly where organizations are almost negligently ignorant about issues, they've kind of closed their eyes and ears and minds to something, and now that's about to no longer be, I think, an adequate defense. Or obviously stepping one step further, if they somehow being aware of things, but sort of misled key audiences. Now that's the same with any business issue. It's just that climate is obviously got that added emphasis of being a global emergency, which creates all sorts of wider sort of reputational, moral, as well as regulatory issues.

So that's what I would say now that's the driving aspect. And so certainly, good governance becomes increasingly important in this issue, because there are so many watchful eyes. Just to tee up loss and damage for Justin and Pete, not everybody will be fully aware of what this term means. But essentially, the audience will probably be aware of a commitment that was talked about a lot in Glasgow, this $100 billion a year to support developing countries in both their mitigation and adaptation transition. Usually mediated through a facility called the Green Climate Fund, separately, I think, I understand, unless Pete and Justin correct me, there is a recognition that there will be some damages, some losses that developing countries face beyond which they can be supported in terms of adaptation. And there's been for some time, a debate about to what extent the richer, I'll say northern countries should be prepared to support that loss. It's gained so much in political momentum at this COP, and it's clearly going to be a critical crux in a COP next year held in Africa. And many would argue that the developing countries were somewhat acquiescent on this matter in Glasgow to help an overall agreement be achieved, but this is going to be front and center next year.

I would say that I think actually, the concept of insurance, broadly defined, between countries, and even within them – and I don't just mean insurance as a sort of an industry, I'm talking about insurance as a collective risk pool – may well enter as a new mechanism to unblock this matter. Because one isn't really then talking about necessarily having to confront issues of liability and compensation for past actions, but it is creating an idea about a shared risk pool where we are all contributing. But obviously, there can be differentiable contributions from richer countries to support others in this collective risk pool. And it might get us to the same end – and actually, with some benefits around risk governance, actually – get us at the same end without some of the rather difficult issues. And what I was quite excited about at this COP was how insurance broadly defined has got a much more positive impetus and framing now than it had even four or five years ago. And I think that's extremely exciting for what I believe is a very important institution of society. But now via you, Diana, I hand over to better men.

Diana Fox Carney: We're running out of time now, but Pete, any thoughts on that loss and damage piece and how consequential it is?

Pete Betts: Well, I agree with much of what – on nearly all of what Rowan said. I think the – I get in trouble for using this definition, but I also use the definition – it's damage and losses to which you can't adapt. To which I'm not implying any responsibility on the part of developing countries, which some say that sentence applies to, but that's what we mean. Personally, I think that liability, reparations, formal compensation will be resisted in perpetuity by the developed world. Frankly, the big emerging economies would be very much in the frame as well, particularly as their emissions will be overtaking developed countries even on a historical basis. They're doing it in the knowledge that this is doing damage, which we didn't. I think there are issues around sort of moral hazard, if there's an automatic compensation.

But that's the defensive part. I think the positive part is clearly, developed countries have sometimes sought to deny this for a long time, there are issues that go beyond adaptation. Loss of territory, permanent salination of land, losing two or three times your GDP in a single incident. And I agree with Rowan that the insurance techniques that Willis Towers Watson are world experts in, have definitely got an important part to play and could be expanded. But there's also other tools as well, which I think we have to help developing countries with, and will help developing countries with. And I would much rather we tried to address the issue by looking at how we get better at dealing with those practical real-world problems, rather than getting into a sort of confrontation around whether we can do liability and compensation or not. So I would have liked to see more of that in the COP, and I hope that will happen in the coming years – a growing focus on how practically can we help with the problems underlying loss and damage rather than probably an unsolvable debate about liability.

Diana Fox Carney: Thank you so much. We're out of time now. This is a hugely complex area, a rich debate. But my takeaway from this is climate is central, there are clear pathways and things we know we need to do. People may need to get advice on that. They may need to participate in the development of standards. And there's lots of processes underway, whether it is around the voluntary carbon markets, integrity initiative, or other things which are not yet resolved. There's an opportunity for everyone to participate in that. But there is no time to lose, and we have to get on with things at a practical level at the same time too. So unless anyone has anything burning that I have failed to allow you to say, I'm going to draw this to a close and thank everyone who's listening, and thank everyone, including Matt who shared their expertise.