Simon Jessop and Jake Spring by Ross Kerber

GLASGOW, (Reuters) – The Glasgow Climate Pact was a hard-fought agreement that sent a strong message to executives and companies around the world: reevaluate your business strategy and carbon footprint to gain monetary benefits or lag behind and suffer risk losses.

Two weeks of tense negotiations ended late Saturday. The agreement, which was announced Saturday night, will force countries to take more steps to reduce climate-warming carbon emission. This will increase the pressure on industry and investment to reduce emissions from their industries.

Also, the Glasgow Pact provided a significant breakthrough in rules for governing carbon markets and targeted fossil fuel subsidies.

Beyond the political negotiations, the Glasgow gathering brought in many of the world’s top CEOs, mayors, and leaders in industries, including finance, construction, vehicles and aviation, agriculture, renewable energy and infrastructure.

Gregory Barker, the executive chairman of EN+ Group’s energy and aluminium business EN+ Group, stated that COP26 had unleashed a flood of private sector money. One thing is sure for business: big changes are coming quickly.

On the other side of the U.N. Climate Summit, two separate investment conferences claimed that profits would be made for cash-strapped companies who met environmental requirements. There were many deals announced. One of them was the creation of a standard body that would examine corporate climate disclosures and challenge boards.

MINIMUM 1.5 DEGREES

As the agreement reaffirms a commitment by all countries to limit global warming at 1.5° Celsius (2.7 Fahrenheit), and “accelerated action during this crucial decade”, boards can expect stricter pollution control policies from every sector, including transport, energy, farming, and transportation.

U.N. says this will make companies that don’t have a plan for adapting to low-carbon economies look vulnerable. Nigel Topping was a high-ranking Climate Action Champion.

Topping stated, “If you don’t have a net zero target right now, it’s looking like that you don’t care for the next generation and aren’t paying much attention to the regulations being put in place.” Your credit rating is at risk and you are unable to retain and attract talent.

Financial service firms worth $130 trillion and more have pledged that they will align their businesses to achieve the net-zero goal. They will increasingly look to the boards of climate laggards for guidance.

CARBON MARKETS

The summit’s deal resolving rules for the global trading of carbon offset credits was applauded by business for its potential to unlock trillions of dollars in finance to help countries and companies manage the energy transition.

According to observers, the rules agreed upon would address the greatest concerns and prevent the most abusive of the system.

According to the non-profit We Mean Business coalition that works with corporations on climate change, the rules have the “potential to unlock huge investments”.

The pact creates the foundation for global trading systems and brings the world closer towards a carbon price. This is what investors and corporations demanded before the negotiations began.

Global prices would enable companies to accurately evaluate the assets and costly externalities. This will allow them to make more climate-aligned choices about everything from building factories, to buying products or where they should be built.

Over 100 world leaders pledged that they would stop deforestation and reverse it by 2030 using carbon offsets. Investors and companies also pledged to increase forest protection efforts.

FOSSIL FUELS

This deal marked the first time that countries acknowledged the importance of fossil fuels as the primary cause of global climate change. It didn’t say what method to use in determining if subsidies were justified.

Although it singled out coal as the polluting fossil fuel, at the last minute, they switched to calling for a “phase-out” of coal-fired power and a “phase up”.

Following opposition from India, China, and other countries dependent on coal, this change was perceived by the developing economies to be an acknowledgment of industrialised nations being most responsible for climate problems. Many in rich countries were concerned that it would lead to more uncontrolled emissions over time as the developing world grows.

Calling the move “dangerous and damaging for the climate,” Germany’s biggest industry association warned it could hobble its industries as they are forced to abandon the cheap fossil fuel international competitors can still use.

According to the Federation of German Industry, “This concentration of emissions occurs in countries that have less strict climate policies and unilaterally burdens companies already having to bear large financial obligations.”

However, U.N. climate negotiations have for many decades avoided the topic altogether, so the mere mention of fossil fuels and coal in the Glasgow agreement was celebrated as progress.

Saker Nusseibeh was the chief executive officer of Federated Hermes International Business (NYSE:). He stated that this result will put pressure on certain oil companies which are not as forthcoming as the others.

He stated that “coal companies must think carefully about the future.”

The world’s largest economies continue to drive the change.

China and the United States were the top-two countries, with China announcing plans to collaborate on climate action including the reduction of methane, a potent greenhouse gas.

Six other countries joined the Beyond Oil and Gas Alliance. They pledged to end new oil and gaz drilling.

The United States, Canada and twenty other countries pledged not to finance fossil fuel projects abroad. 23 countries also promised to eliminate coal-fired electricity.

Many companies across a range of sectors, including transportation, are investing heavily in electrification. U.S. carmakers Ford (NYSE:), and General Motors(NYSE:) both claim they will eliminate fossil fuel vehicles by 2040.

The Glasgow talks have “drawn attention to the great opportunities arising from a different form of development – stronger, cleaner, more efficient, more resilient and more inclusive,” said climate economist Nicholas Stern. They “encourage clean, green production to be competitive in every area by 2030.”