Corporate Governance

Shearman & Sterling LLP A Deeper Look at the Global Framework Principles for Decarbonizing Heavy Industry | 46 Another principle that is common between the two frameworks is to encourage greater international coordination to share and co-develop technologies, create viable circular economy pathways (such as expanded material re-use and recycling networks), sunset clauses for high-emitting technologies (by specifying a date beyond which these technologies plants must be retrofitted or close), and implement responsive trade policies to reduce emissions leakage between economies has taken hold and is, for the most part, demonstrably scaling upwards. COP26, while criticized for its failure to yield more profound and binding climate action, did succeed in bringing the international community together through the Glasgow Climate Pact, which agreed on a global phase-down of coal-based electrical generation. Already many nations are preparing for more aggressive proposals in the run-up to COP27 scheduled for November of 2022. The rising tides of nationalism, growing vulnerability over energy security, and the ongoing war in Ukraine have served to undo significant coordination and progress and have once again thrust much of the war into re-polarized positions. Nevertheless, the international climate community and global industrial players must remain optimistic that their improvement efforts can persist in spite of the outwardly decaying international dialogue. On the emissions leakage front, much work remains to be done, as developing countries such as China and India continue to increase their emissions footprints, due in large part to shifting mass production to factories in these countries that operate at significantly less cost and under considerably less environmental regulation. Without international carbon markets, or carbon border adjustments, the plummeting cost of coal is an incentive for emerging countries to invest in coal power plants. The end result of course, being that the net emissions footprint has shifted somewhat out of sight and has increased. Clearly, there is much work to be done in reducing these cross-border emissions leakages. SEEKING OPPORTUNITIES IN INDUSTRIAL DECARBONIZATION There are several opportunities in the industrial sector that are ripe for disruption, and that fall in line with the proposed framework principles. Investors and corporations are beginning to seize upon green manufacturing alternatives to produce essential industrial commodities such as steel, cement and chemical production. They are increasingly incorporating advanced materials that reduce the environmental footprint of many manufactured goods. Service providers are working more closely than ever with industrial clients to decarbonize their operations, and the pace of financial investment and subsequent technological innovation in the manufacturing and industrial sectors has picked up considerably. It is now clearer than ever that the industrial sector is poised to have an outsized impact on global decarbonization efforts; what remains is merely the confluence of innovation and drive to see this transformation through.

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