COP27: What happened? What didn’t happen? What next?
After two frenetic weeks of activity – and many more months of preparation – COP27 closed amongst a mixture of acrimony, positivity, criticism and jubilation. That such a mixture of emotions and sentiment highlights what a complex challenge combatting global climate change presents.
To try and cut through the noise, here’s IIGCC’s short take on the last two weeks. All with an eye on the investor perspective, we address the three simple questions of: What happened? What didn’t happen? What next?
The biggest and arguably legacy defining moment from COP27 was the agreement amongst national governments to create a ‘loss and damage’ fund to aid vulnerable countries to deal with the impacts of climate change.
Even before the conference started, loss and damage was being touted as the key issue for the conference. This was reinforced when it was formally added to the agenda, followed by numerous emotive and direct speeches given by politicians from affected countries in the opening few days.
While currently there is a lack of detail about the proposed loss and damage fund, a transitional committee representing 24 countries has been set up with the task of establishing how the fund will work and where the money will come from. Recommendations will then be presented as COP28. While ultimately a landmark moment, many of the most sensitive aspects remain yet to be resolved.
Another major theme throughout COP27 was adaptation, including a key focus on the finance needed to help vulnerable communities adapt to climate change through concrete adaptation solutions. Most significantly, the negotiators agreed to produce a report on progress towards doubling adaptation finance by 2025 for COP28. The focus on adaptation aligns closely with IIGCC’s recent work on this topic, including on the ground in Egypt and the recently announced Climate Resilience Investment Framework.
For institutional investors, there is a specific mention in the COP27 cover decision, known as the Sharm el-Sheikh Implementation Plan. This relates to the required transformation of the financial system in order to deliver the USD $4 trillion per year needed to be invested in renewable energy up until 2030 to be able to reach net zero emissions by 2050. Importantly, this is the first specific mention of ‘institutional investors’ in such COP documentation.
Other major developments included: signatories to the Global Methane Pledge now totalling 150 countries; Brazil symbolically re-joining global cooperation in the fight against climate change thanks to president-elect Lula da Silva attending and reassuring the conference in person; and multilateral development banks (MDBs) coming under pressure to reform, with specific calls for them to be ‘fit for purpose’ to tackle the climate emergency.
What didn’t happen?
Often what doesn’t happen is just as important as what does – in this regards COP27 was no different.
Critically, there was no significant progress on closing the ‘ambition gap’ and keeping a rise in global temperatures to 1.5°C possible. Some countries pushed for the final COP27 agreement to reference ‘peaking emissions in 2025’ but this did not make it in the final text.
Similarly, there were no significant new steps since Glasgow’s COP26 on reducing dependence on fossil fuels and reducing emissions this decade. In this regard, the world’s major emitters made no notable new commitments on climate mitigation.
Commenting on this lack of progress, Alok Sharma, former COP26 president, passionately expressed dissatisfaction when he stated: “Emissions peaking before 2025, as the science tells us is necessary. Not in this text.”
There was also little to no progress on gender, with this topic largely absent from the negotiations. This issue was highlighted by some commentators who noted that only seven out of the 110 world leaders at COP27 were women.
While COP27 may have thrown up some uncertainties, what is clear is that investors have a major role to play in addressing the climate crisis.
In particular, while there are questions over whether globally we can achieve a credible pathway to 1.5°C, investors have a vital role in trying to make this a reality. This puts the number of net zero commitments, such as the Net Zero Asset Managers initiative and the Paris Aligned Asset Owners into sharper focus, as while voluntary initiatives alone don’t provide all the answers, they are vital for driving the large scale change in investment and capital allocation needed.
In addition, if we are to keep 1.5°C alive, then corporate engagement has a key role to play between now and 2030 in facilitating the change we need to see amongst corporates globally, not just those part of Climate Action 100+.
And of course, governments around the world need to step up their policy ambition, even if there wasn’t consensus in Egypt. That’s why initiatives such as the Investor Agenda’s annual Global Investor Statement to Governments on the Climate Crisis remains critical, as until policy ambition is high and aligned with policies for the real economy, then investors will not be able to provide the levels of investment needed to finance the transition of the global economy to net zero.
Finally, intertwined with a lot of the talk of loss and damage, COP27 also reiterated the need for greater investment in emerging markets. The focus on MDBs and the need to catalyse more investment through blended finance solutions was positive in this regard, but we must not lose sight of the fact much of the conversation and indeed investment to date towards climate mitigation, including solutions, and adaptation has focused on developed, wealthier countries. To deliver net zero globally, requires a global response which means getting more capital flowing to emerging markets.
Ultimately, COP27 did provide some positive moments, but it also fell short in numerous instances. Yet regardless of what the COP process did or didn’t achieve this year, it is clear there is more to be done in the run up to COP28. With the G7 and G20 both in Asia in 2023, and climate finance remaining a major focus of the COP and other international fora, the message to investors is clear: the transition to a net zero economy must happen, and it continues to happen, but it can only be achieved at the scale and speed required with your support.
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