The field of international environmental law is no stranger to private sector cooperation. If lasting environmental change is to be achieved, it is going to require the participation of every sector. The 1987 Brundtland Report was the first to recognize the importance of sustainable development, which “meets the needs of the present without compromising the ability of future generations to meet their own needs.” The Rio Declaration (1992), UN Global Compact (1999), Millennium Development Goals (2000), and Sustainable Development Goals (SDGs) (2015) have expanded upon this key concept. By encouraging environmentally and socially conscious economic growth, international organizations and frameworks have brought businesses to the negotiating table instead of turning them away. This is further exemplified through the inclusion of market mechanisms and private sector engagement provisions in the Kyoto Protocol (1997) and Paris Agreement (2015), among others.
The term ESG (environmental, social, governance) was first introduced in Who Cares Wins, a 2004 report published by the International Finance Corporation in partnership with the aforementioned UN Global Compact. Given the rising importance of ESG, recent Conferences of the Parties (COPs) have sought to further integrate businesses and ESG principles in substantive developments. The Glasgow Financial Alliance for Net Zero (GFANZ) was organized at COP26 to rally the private sector around decarbonization. At COP27, the International Sustainability Standards Board (ISSB) announced its new Partnership Framework to create global climate disclosure standards. Last year’s COP28 saw the development of the Net-Zero Transition Charter, which, in addition to the Science-Based Targets Initiative’s (SBTi) call to action on Scope 3 emissions (indirect emissions produced throughout a company‘s value chain), motivated hundreds of business organizations to make stronger climate pledges.
This trend continued at COP29, held last November in Baku, Azerbaijan. There were many key outcomes, and several either directly impact the private sector or will inspire additional progress in the ESG space.
On the first day of COP29, Parties reached consensus on a decision endorsing standards for the operationalization of Article 6.4 of the Paris Agreement, which establishes a global carbon market mechanism overseen by the United Nations. This mechanism allows countries to buy and sell credits associated with decarbonization projects, and there is great overlap with the private sector. Companies spearheading such efforts will be able to add their projects to the UN registry. Foreign governments can then either pay these companies directly for the credits or they can liaise with the company’s home country, which may offer additional subsidies or other incentives to businesses pursuing these projects. Moreover, Parties endorsed the Sustainable Development Tool, which requires environmental and human rights safeguards for all credits uploaded to the registry and made available for trading. The tool parallels very common ESG principles already in use at some private sector registries and ensures that environmental and social externalities are assessed properly. While there is still more work to be done in operationalizing Article 6.4, this decision marks an important step in the right direction.
Less progress was made on Article 6.2 of the Paris Agreement, which allows countries to trade Internationally Transferred Mitigation Outcomes (ITMOs) through bilateral or multilateral agreements instead of the global mechanism established in Article 6.4. The 6.2 decision reached at COP29 discusses the authorization and reporting of ITMOs, but ultimately requests more information from participating countries. Parties left certain subjects, like resolving ITMO inconsistencies and revoking ITMOs for intranational use, up for discussion at future COPs. These are contentious issues that were raised at previous COPs, and with such important questions unanswered, it is unclear for now how the private sector will play a meaningful role.
Another bright spot for businesses was the release of the International Organization for Standardization’s (ISO) ESG Implementation Principles (IWA 48). These principles are designed to help organizations implement sustainability strategies and integrate ESG into their business models. They were developed with consultation from nearly 2,000 industry experts representing 128 countries. ISO’s principles are also unique in that they are specifically crafted to be accessible for small and medium enterprises (SMEs), which are traditionally excluded from ESG reporting platforms and frameworks. Compatibility and interconnectedness with existing regimes were also prioritized, to harmonize the current ESG landscape and provide businesses with additional clarity regarding reporting standards.
Aside from the fact that IWA 48 was unveiled at COP29, there are various connections between these principles and international environmental law. First and foremost, the ISO relied heavily on the UN SDGs. Recognizing the global and society-wide impact the SDGs have made in just nine years, the ISO has designed their principles so that businesses can “optimize the links between ESG activities in the context of selected SDGs.” This alignment will allow businesses to launch, track, and verify initiatives that support any SDGs of importance to their organization. Additionally, IWA 48 is compatible with the European Sustainability Reporting Standards (ESRS), which were first published in December 2023. Large companies need to use the ESRS to comply with EU disclosure requirements. IWA 48 could also help private entities satisfy the environmental and human rights safeguarding standards of the Article 6.4 Paris Agreement crediting mechanism. By integrating its principles with existing regulatory schemes, the ISO is marketing its platform as a universal tool that will make pursuing ESG convenient and worthwhile for companies of any size around the globe.
For the foreseeable future, corporate sustainability and ESG will continue to grow in popularity. The development of Paris Agreement crediting mechanisms and the release of new ISO ESG principles will ensure that the private sector can be involved in the march toward international sustainable development. While there is still much progress to be made, COP29 represented a success for the ESG movement. To learn more about these and other outcomes, be sure to visit Carbon Brief’s detailed summary.
