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Why businesses must prepare for a post-Paris Agreement world

What set COP21 apart from previous U.N. climate negotiations was not only its ultimate success in reaching the first global agreement to tackle climate change, but also the impressive display of business support for climate action.

But despite the high-profile business presence December in Paris, the University of Cambridge Institute for Sustainability Leadership (CISL) is worried not enough companies have recognized the potential importance of the Paris Agreement to their day-to-day operations.

"The businesses that were present at COP21 are the extreme end of those who are very well informed and very interested in the agenda," said Jill Duggan, director of policy at CISL. "But actually it's the tip of the iceberg — lots of businesses read about it and see it on the news but don't really know what it means for them."

To reach those businesses who weren't treading the halls at Le Bourget last year, or following the ins and outs of the treaty negotiations from their desktops, CISL this week released abusiness briefing (PDF) designed to clearly set out what the Paris Agreement is and why it's important to all businesses, including those who have to date had little interest in climate action.

The aim is to highlight to business leaders beyond the "usual suspects" of sustainability executives how much potential the landmark climate deal has to radically reshape our economy, Duggan told BusinessGreen. "I really hope it gets beyond the sustainability executives," she said. "We have a huge scale up of activity required to transform our economy in a way that prevents dangerous climate change. And that requires the business community to understand and address it."

The briefing sets out the central pledges of the Paris Agreement — the "well below" 2 degrees Celsius promise, the commitment to deliver decarbonization of the global economy by the end of the century, the role of the Intended Nationally Determined Contributions and the five-year review cycle — before applying a business measurement tool known as a PEST analysis to unpack what these promises mean for business.

Paris PEST

PEST is an acronym for Political, Economic, Social and Technological factors, and as the briefing makes plain, the Paris Agreement has the potential for significant business impact across these four categories. 

In policy, the Paris Agreement looks set to usher in a tsunami of climate regulation around the world, from the introduction of mandatory carbon pricing to standards for vehicles emissions.

In economics, it is reshaping the market forces for investment, thrusting clean energy and technology solutions into the spotlight. The briefing warns that the cost of capital for high carbon projects will increase as the low-carbon transition gathers pace, while it also points out that greater attention will be paid to assessing the climate risks of a project ahead of financial decisions.

Meanwhile, the Paris Agreement is likely to also have a profound impact on consumer attitudes across society, as companies and governments come under increased scrutiny from the public and legal professions for their climate change activities.

And finally, clean technology will be at the beating heart of the low-carbon transition, a fact that will see a sustained and enduring investment in low-carbon research and development. Not only that, but technological advances will enable new climate-friendly business models to emerge, from resource efficient sharing economy ventures such as AirBnb to smart city services. Businesses must keep pace with this innovation or risk falling by the wayside, the report warns.

More broadly, business must be prepared for radical change, Duggan said.

It's very important to understand how this changes the way they should be thinking about their business models, their research and development, their technical development, and the investments that they make," she insisted.

COP22

Meanwhile, COP22 in Marrakesh is just weeks away, and the business world can't afford to take its eye off the ball. Even if it may not have the fanfare of COP21, the summit is crucial for laying out the rules for how the Paris Agreement actually will work in practice. Firms should take note, Duggan insisted.

"It's really important that businesses don't just think 'well, that was Paris and we can forget about this now'; they should really be keeping an eye on what happens, and we would very much like businesses to remain involved," she said. "It's not just about COP21 — this is going to be important every year."

With the role of business central to the success of the Paris goals, it is vital the corporate sector understands, and plans for, the impacts of the low-carbon transition. If COP21 showed that high-profile big business is on board with climate action, this briefing should go some way to reaching that "hidden iceberg" of companies that can really unleash the green business revolution.

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