COP27 and the implications for business
Even though the Paris Agreement ‘rulebook’ was largely finalised in Glasgow last year, that work continued at COP27 in Sharm El Sheikh, where crucial issues surrounding climate finance, mitigation, adaptation funding, loss and damage, carbon markets, and clean energy were all under discussion. Increasingly, too, the annual summits are becoming platforms for announcing or establishing major national and private sector partnerships, pledges, and policies that can help accelerate decarbonisation efforts further.
None of that was achieved overnight, but through painstaking, ongoing work to ensure the global governance architecture is working as effectively and efficiently as possible to drive smooth, fair, and rapid decarbonisation.
Moreover, the very concept of ‘net zero’ emissions and the need to get there by mid-century is derived from the text of the Paris Agreement. Without that treaty and the UNFCCC process, it is impossible to imagine 90 per cent of global GDP being covered by net zero targets, as it is today. There are lots of legitimate questions about whether those targets are credible and whether they will be met, but it was the Paris COP that clearly established the climate goals that governments and businesses are now working towards, providing a clear framework for future progress. Policies driven by the decisions made at COPs have unlocked billions of dollars of investment in the net zero transition, the single most important economic trend for the rest of the century.
In the seven years since the Paris Agreement was struck at COP21 in 2015, policies and investments enacted in its wake have bent the curve of likely future temperature increases from a terrifying worst-case scenario of 4.8C by the end of the century, down to well under 3C. Far more detailed policy action is clearly still needed to get onto a 1.5C or 2C pathway, but if current national pledges and targets are met, it would put the world on track for 2.4C of warming, according to the Climate Action Tracker initiative. That is, by any measure, a significant shift in the temperature dial within seven years, which can largely be credited to the progress unleashed by the Paris Agreement.
For that reason, securing meaningful progress can feel like a slog, and rarely if ever is anything achieved at the pace and scale required. But while figures from across the political spectrum each year predictably dismiss the multilateral process established by the UN Framework Convention on Climate Change (UNFCCC) as a waste of time, the real-world evidence suggests otherwise.
On the sidelines of COPs, there is a metaphor you will occasionally hear that serves to underscore the scale of the diplomatic task. Try to imagine 200 friends, foes, family members, and neighbours attempting to decide where and what to eat for dinner, and everyone – children, meat eaters, vegans, coeliacs, diabetics, and those with nut allergies – having an equal say. What’s more, everyone has very different budgets and they all have to agree to eat at the same restaurant, or no one eats at all. Then, at the end of the meal, they have to work out how to fairly split the bill, a recipe for disagreements that leaves many heading home with a sour taste in their mouths. Oh, and the future habitability of the planet depends on the outcome of said meal. That, perhaps, offers a small sense of the diplomatic challenge involved at a UN Climate Summit.
COPs are a lot of things. They are chaotic, complex, wearisome, insipid, depressing, stressful, important, infuriating, and inspiring, and all within the space of just a fortnight. But while there is arguably a strong case for operational reforms of the annual summits, no one can credibly argue COPs don’t matter.
Introduction
As ECIU’s Richard Black, a veteran of annual UN climate summits stretching back decades, is fond of saying: “For all its faults, if the UNFCCC didn’t exist, you would have to invent it. Because there has to be a forum where every government gets to represent its people on climate change.”
How else to tackle an existential crisis of global proportions that affects every single square metre of the planet and all life upon it if not through a multilateral, if inherently flawed, decision-making process? And how to drive that process without countries meeting? No one government or company can solve climate change alone, which is why they get together at COP each year, and why the market and policy signals sent out from the event – the positive and negative - have widespread, critical implications for business.
COP27 and the implications for business
LOOKING FORWARD TO COP28
LOOKING FORWARD TO COP28
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COMMITMENTS
CORPORATE
COMMITMENTS
MITIGATION
MITIGATION
FINANCING CLIMATE ACTION
FINANCING CLIMATE ACTION
SHARM EL SHEIKH
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SHARM EL SHEIKH SUMMIT
TOPICS
It is a matter of intense debate as to how successful the Summit was when measured against this new remit. It delivered a breakthrough agreement on climate financing in the form of a deal on the formation of a new Loss and Damage Fund and provided a platform for a fresh array of government and private sector climate initiatives. But it was also accused of failing to do nearly enough to advance decarbonisation efforts and of defending the interests of petrostates and the fossil gas industry.
This Briefing Paper takes a look at the key agreements and announcements from COP27 and their implications for the business and investment community. There was, as ever, a lot to consider.
It did not enjoy the same profile as the COP26 in Glasgow last year, which was set up to finalise the rulebook of the Paris Agreement and call on countries to strengthen their national climate action plans, or Nationally Determined Contributions (NDCs) in the UN jargon. But the relative success of the Glasgow Summit in delivering on those tasks meant the Sharm El Sheikh Summit marked the start of a new era of COP Summits. With no technical negotiations over the rulebook to focus on, COP27 was tasked more with enacting the Paris Agreement and accelerating real world progress. As such, the Egyptian hosts dubbed the meeting an ‘Implementation Summit’, and the final agreement was labelled the Sharm El Sheikh Implementation Plan.
The COP27 Climate Summit in Sharm El Sheikh, Egypt, which ran from 6th November until its eventual close two days past its official deadline on 20th November, was one of the most significant COPs in recent years.
Sharm El Sheikh Summit
In Sharm El Sheikh this year, debates over finance dominated proceedings more than ever, most notably over ‘Loss and Damage’, which became the defining issue at COP27 after climate vulnerable nations successfully lobbied to put the issue onto the main summit agenda. Why should poorer nations be made to pay for global warming impacts caused by richer, industrialised nations, they asked? The case for the ‘polluter pays’ principle has only been made stronger by the growing prominence of climate impacts worldwide, such as the devastating floods that left a third of Pakistan under water this year, and worsening famine in east Africa.
In the end, after talks ran deep into overtime, differences that once seemed irreconcilable were overcome in an historic deal to set up a new Loss and Damage fund for assisting developing countries “that are particularly vulnerable to the
With the world having now (mostly) coalesced around the scientific evidence underpinning the climate crisis and the set of targets this evidence implies is necessary, issues surrounding money have increasingly come to the fore at COPs in recent years, exposing the stark division in priorities between richer and poorer nations. When looking at the sums, it is easy to see why: by some estimates $125tr may be needed over the next 30 years to fund the global net zero transition, while adapting to already baked-in changes to the climate could cost up to $340bn a year by 2030, and dealing with the damaging after-effects of global warming impacts could run to as much as $1.8tr in 2050.
FINANCING CLIMATE ACTION
financial institutions to better align and scale up their funding around climate finance, address climate risk, and “deploy a full suite of instruments” to in the climate fight.
As the cover text notes, delivering the scale of finance needed to fight climate change “will require a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors”. Pressure on global financial institution and MDBs for change is sure to mount over the coming months, with all eyes on crucial spring meetings at the World Bank, IMF and others next year to see how and if they respond.
The text represented a major win for the Bridgetown Agenda and adds further momentum to a campaign that feels increasingly unanswerable. There will inevitably be some push back to such drastic reforms from within the World Bank and IMF, but equally both institutions increasingly recognise the need for them to respond to escalating climate crises that could derail their core remit of driving economic development and maintaining economic stability.
Again, the implications for the private sector are obvious. The reforms proposed by Mottley and others rely heavily on private finance being leveraged in to deliver net zero and climate resilient infrastructure projects. The direct investment, loan guarantees, and concessional finance delivered through the World Bank and MDBs are all designed to pull in more private sector investment and mobilise projects that can have a catalysing impact on green economies worldwide. Done right, immense business and investment opportunities should flow from this vision for a Bretton Woods 2.0.
An uplifting report from the ECIU think tank released during the summit indicated the EU, India, US, and China are all on track to deliver faster progress towards a clean energy economy than they have set out so far in their NDCs, largely thanks to the rapid deployment of electric vehicles, renewables, and other clean technologies. The International Energy Agency used the Summit to again stress that it expects global energy-related emissions to peak very soon.
COP27 may have broadly failed to build on the level of ambition for mitigation that was established at COP26 in Glasgow last year, but there are hopes that some key players, such as China and the US, could yet move to strengthen their national plans next year, especially given the surprise passage of the Biden administration’s climate bill in the form of its Inflation Reduction Act. Moreover, the
All in all, COP27 served to ratchet up greater pressure for progress on mitigation at COP28 next year. Much of that pressure will likely fall on the language in the final text on fossil fuels, after India’s bid to include a pledge seeking a “phase down” of all unabated fossil fuels rather than just unabated coal power did not make it into the text in the face of fierce opposition from the likes of Saudi Arabia. However, some 80 nations apparently backed India’s push – with even the US and Canada coming around to the idea during the final hours of the summit – setting the stage for a major fight in the UAE. It remains faintly ridiculous that in 30 years of COP summits there is still a refusal to openly acknowledge the role of fossil fuels in the climate crisis, but the tide is rapidly turning, hastened by the current global energy crisis that has exposed how expensive and risky hydrocarbons are.
COP27 took place against one of the most challenging geopolitical backdrops in UNFCCC history, with an already vulnerable global economy reeling from the pandemic now this year facing soaring fossil fuel prices, food supply shortages, devastating climate-driven disasters, and the fallout from Russia’s war in Ukraine.
Such distractions no doubt played a sizeable role in slowing progress towards cutting emissions in Sharm El Sheikh, with only around 30 nations submitting updated climate plans or NDCs in the run up to and during the summit. That is despite all 194 parties to the Paris Agreement last year signing off on the Glasgow Climate Pact, which called on signatories to revisit and update their NDCs ahead of COP27 if they were not currently in line with a 1.5C warming scenario.
Mitigation
But it was the election just prior to the Summit of Luiz Inácio Lula da Silva as Brazil’s new president, which delivered arguably the biggest boost for nature and climate action at COP27. Lula was treated to a hero’s welcome at the summit, as he promised to re-engage Brazil with global climate and environmental efforts, end deforestation in the Amazon, and support regenerative farming. Amid fears the destruction of the Amazon is reaching a ‘tipping point’, Lula also joined with Indonesia and Democratic Republic of Congo – the world’s three largest rainforest nations – in formally launching a partnership to cooperate on forest conservation. He even launched a bid for Brazil to host the COP30 summit in the Amazon region in 2025. With an ambitious Brazil back in the climate fold after several years of record deforestation levels under outgoing president Jair Bolsonaro, it may provide a much-needed fillip for
Controversy remains over the effectiveness of the voluntary carbon market, but US Climate Envoy John Kerry is certainly a vocal fan of the approach. On the sidelines of COP27, he announced plans to design an Energy Transition Accelerator to help channel billions of dollars of investment into phasing out fossil fuels and ramping up clean energy through the wider use of carbon credits. Kerry touted the scheme as a means of corporates and private investors offsetting their own emissions by investing in energy transition efforts in developing nations. Details are far from being worked out, and questions will continue to be asked about the viability and credibility of credits under the initiative, but as the US struggles to convince Congress to step up to the plate on the nation’s climate finance commitments, expect many more such efforts to tap into carbon trading as a potential means of filling the gap.
There are two significant implications for businesses from this activity. The first is that carbon offsets provided by either technology or nature-based projects are not going anywhere and the market is set to keep on growing. The second is that the scrutiny on these projects is more pronounced than ever and any businesses that get involved in the market have to do their due diligence to ensure projects are credible and deliver promised emissions savings.
Taking place concurrently to COP27 was the G20 summit in Indonesia, which arguably delivered a more ambitious statement of intent on the near-term climate ambition of the world’s biggest economies than that which emerged from the final outcome in Sharm El Sheikh.
The biggest single G20 set piece announcement was the $20bn Just Energy Transition Partnership (JETP) deal to help wean Indonesia off its vast fleet of coal power plants and accelerate the Asian nation’s transition to renewables. Major financial firms in the Glasgow Financial Alliance for Net Zero (GFANZ) have been tasked with mobilising at least $10bn of that money from the private sector, and at least one Indonesian coal plant has already been identified for early closure under the deal. It follows a similar JETP with South Africa unveiled at COP26, while details of another between industrialised nations and Vietnam are expected to emerge before Christmas. With further JETPs with both India and Senegal earmarked for 2023, this public-private partnership approach promises to build major impetus for investment in clean energy in emerging markets and beyond.
Another sign of rising climate expectations on business came from the US, which announced plans that would make it the first government to require its major suppliers to set science-based climate goals and disclose climate-related risks. As the world’s single largest buyer of goods and services, with a budget estimated at $630bn last year alone, the heft of the US government behind science-based corporate climate goals could have a transformative impact on the global drive to net zero in the private sector worldwide. Pressure will now surely fall on other major governments to follow suit, thereby raising the bar significantly for any business looking to secure public sector contracts.
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Michael Holder is editor of BusinessGreen, providing daily news, analysis, newsletters, and video content for the award-winning site.
He has been an environmental journalist for over a decade, initially focusing on recycling, energy from waste and air pollution, and now covering the breadth of the burgeoning net zero economy with BusinessGreen.
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No one government or company can solve climate change alone
So, with COP27 done and dusted, where does it leave us for the year ahead?
Most pressingly, eyes will turn to the COP15 UN Biodiversity Summit in Montreal, which kicks off in December after several pandemic-induced delays. The pressure is certainly on for nations to broker what would be an historic treaty to reverse the global biodiversity crisis from 2030, but this is far from a done deal. Hopes had been high that an ambitious outcome from COP27 that directly linked to climate and biodiversity negotiations could have helped inject momentum into the COP15 talks, which continue to attract far less attention than the climate talks, but that wasn’t to be. The presence of global leaders such as Brazil’s Lula, and Canada’s Justin Trudeau, however, may help bring some much-needed star power to proceedings.
Next year, meanwhile, the spring meetings of the World Bank, IMF, and other MDBs will provide a strong signal as to whether the Bridgetown Agenda has any legs beyond the COP process. And on the domestic front, the UK will be forced by the courts to published an updated Net Zero Strategy before April, and the EU may be among a flurry of parties officially submitting updated 2030 climate plans to the UNFCCC in support of the Paris Agreement. All eyes will also be on the White House to see if the Biden administration can build on its better than expected showing in the mid-terms to drive forward further climate policy moves.
On the eve of COP28 in UAE, another crucial moment next year will be marked by the end of the so-called Global Stocktake, a two-year process to monitor, assess and review the world’s collective progress towards the goals of the Paris
Ultimately, however, the prospects for COP28 will likely be largely shaped by events beyond the UN climate negotiations. Will Russia’s invasion of Ukraine be repulsed or will conflict escalate further? Will the global energy and food markets stabilise or is the world facing a period of sustained volatility? Will the seemingly improved relations between the US and China at COP27 feed into the wider relationship between the two superpowers?
With the next UN climate summit taking place in one of the world’s most oil and gas-rich nations, which is also home to one of the world’s biggest clean energy companies in the form of Masdar, COP28 at the current juncture promises to be a thoroughly unpredictable affair. But one thing remains certain: the global transition towards clean technologies and the march of net zero policies is accelerating. And as such, COPs matter.
Looking forward to Cop28
But whatever battles lie ahead, the symbolic admission from developed nations of their moral obligation to support countries facing climate losses and damages was palpable at COP27, and came backed with more money than ever, albeit at levels that are still orders of magnitude below what is needed. All in all, climate funding pledges from rich nations totalling more than $300m were announced in Sharm El Sheikh towards a mix of Loss and Damage initiatives. The bulk of that funding – around $220m – was earmarked for the Global Shield against Climate Risks, a new initiative designed to quickly deploy financial support in response to climate-related disasters, led by Germany with the backing of the G7 and 58 climate vulnerable nations. On top of that, the UK unveiled plans to offer debt holidays to countries reeling from climate disasters, enabling them to defer debt payments in the event of a crisis, thereby freeing up more sources to fund disaster relief. Developed nations, under pressure, are increasingly coming forward with innovative new financing solutions.
Climate funding pledges from rich nations totalling more than $300m were announced in Sharm El Sheikh
adverse effects of climate change”. A new committee is set to meet before March, before making recommendations on how to operationalise the new fund at COP28 in the United Arab Emirates (UAE) in December 2023.
For around three decades such nations have sought a funding mechanism for Loss and Damage, only to see their efforts stymied by the implacable opposition of industrialised economies that have long feared the formation of such a fund would require a tacit admission of liability on their part that could leave them open to unlimited claims of climate ‘compensation’ or ‘reparations’. The relaxation of the negotiating red lines of the EU and EU represented an historic breakthrough for the talks.
But even though a Loss and Damage fund has been promised, many battles lie ahead as to what the fund should look like, how it should be governed, what its remit should be, which countries should pay into it, and which should be eligible recipients. Getting nations to cough up will be a challenge. The EU, US, and their allies argue bigger, emerging economies such as China and Saudi Arabia – historically classed as developing nations – should be ineligible from receiving Loss and Damage funding, and should instead be among those richer nations paying into the fund. But China and others are keen to maintain the status quo. The new committee tasked with navigating this particular geopolitical minefield and recommending how the fund should work faces a hugely difficult task. As such, there is scepticism as to whether a fully operational Loss and Damage fund is likely be delivered within just one year, despite the fact any delays would leave poorer climate vulnerable nations furious.
Elsewhere, the global drive towards an electric vehicle future shifted up a gear at the summit, with the UK, US, Germany, Japan, the Netherlands, Sweden, and South Korea signing a new global commitment to work more closely on supporting the transition to EVs in emerging nations. That came on top of a new ZEV Emerging Markets Initiative led by the US to help attract more investment into electrified transport in developing countries.
These efforts formed part of the so-called ‘Breakthrough Agenda’ launched at COP26 last year, which aims to mobilise companies, government, and investment to help accelerate the uptake of clean tech worldwide across carbon intensive sectors. Expect activities under this umbrella to ramp up further in the lead up to COP28.
Serious clean tech money is starting to flow into these public-private partnership initiatives, too. Another effort born in Glasgow last year, the First Movers Coalition, welcomed another ten companies into its fold, in addition to launching a new pledge for its members to use their purchasing power to support low and zero carbon cement and concrete. Altogether, the Coalition’s collective purchasing commitments in pursuit of green products and materials from heavy industry have grown to $12bn by 2030, in what could be transformative for decarbonising heavy industry, green transport, and scaling up the use of CO2 removal technologies.
The message from the sidelines of COP27 was that the global clean tech revolution is only going to accelerate, driven by a large and growing coalition of governments and multinational businesses.
Clean technologies are in favour with governments globally, and fossil fuels are going to face ever more regulatory and policy pressure
Meanwhile, COP27 also saw the establishment of a new five-year joint work programme aimed at accelerating the deployment of transformative climate technologies in “high potential sectors” across water, energy, food, industry, and more. And the cover text highlighted how a technology work programme could prove hugely supportive in helping countries establish national innovation systems, technology roadmaps, and better incorporating clean tech into their NDCs.
Again, the direction of travel is clear for businesses and investors. Clean technologies are in favour with governments globally, and fossil fuels are going to face ever more regulatory and policy pressure. The text may help enable more investment in carbon capture and storage and other fossil fuel-based technologies, but it is increasingly clear the majority of governments want renewables to emerge as the backbone of the global energy system.
If current national pledges and targets are met, it would put the world on track for 2.4C of warming
agreement covering both mitigation and finance efforts. First launched at COP26, it is the first global stocktake since the Paris Agreement came into being in 2015, and is seen as a key to the treaty’s ratchet mechanism for encouraging countries to enhance and accelerate their climate ambitions.
Meanwhile, the exponential rollout of renewable energy and electric vehicles will continue to send records tumbling, further demonstrating the inarguable case for decarbonising the global economy rather than paying the ever-increasing bill for risky fossil fuels and the losses and damages wrought by continuing emissions.
Similarly, COP27 also saw the launch of the Asia Clean Energy Coalition (ACEC), which aims to bring clean energy buyers, project developers, and financiers on board to support the deployment of renewables technologies across the region. Founding members include some of the biggest firms in the world such as Amazon, Apple, IKEA, Meta, Iberdrola, and more. Developing nations are now perhaps starting to be seen as major new markets for clean energy development, which will be critical to helping them ‘leapfrog’ fossil fuels and thus deliver on global emissions goals.
Outside the main country-led negotiations, COPs have increasingly become a stage for launching non-state or public-private initiatives, and amid a disappointing lack of progress on mitigation in the final decision text in Egypt, these various announcements provided some of most eye-catching news from COP27.
From a business point of view, among the most consequential announcements from Sharm El Sheikh was the launch of stringent, UN-sponsored ‘red lines’ for companies looking to establish net zero emissions targets. Developed by a High-Level Expert Group over the past year, the guidelines are aimed at stamping out corporate greenwash, by establishing challenging standards covering areas such as carbon offsets, fossil fuel investments, and lobbying activities. The UN’s aim is to establish a single, global set of standards for what constitutes a credible net zero target, and in doing so it has raised the bar significantly. As it stands, most corporates will struggle to meet the standards proposed by the group, but the signal sent by the UN and COP27 nations about the paramount importance of credibility on net zero is loud and clear. Indeed, the High Level Expert Group’s recommendations for net zero goals were also welcomed in the final CO27 cover text agreement, which describes the framework as “designed to enhance the transparency and accountability” of pledges from businesses, investors and cities.
There was also progress on adaptation finance, with new pledges totalling more than $230m made to the Adaptation Fund to support vulnerable nations. And while there was no explicit mention in the final main cover text agreement of the ambition for developed countries to double adaptation finance this year, the UNFCCC has been tasked with reporting back next year at COP28 on progress towards the goal. Moreover, COP27 saw nations agree a pathway to establishing a Global Goal on Adaptation next year, which would provide an adaptation equivalent to the 1.5C emissions goal.
Multilateral efforts to mitigate climate change remain sluggish, but COP27 showed how focus and funding are increasingly contending with the worsening impacts of climate change, whether through more resilient infrastructure and agriculture, or insurance, reconstruction, and direct aid.
The business implications are obvious: the deal on Loss and Damage means all governments now have even more reason to invest in enhancing climate resilience and adaptation measures, while the increasing flow of climate finance into developing economies will bring with it massive clean tech and green business opportunities for firms that can aid and enable low carbon development. Businesses and investors can expect climate resilience and sustainable development to be pushed further up the global policy agenda, despite the current economic headwinds and concerns over energy security.
More positively, too, clean technologies received a boost in the final cover text agreement, which namechecks renewables several times, including through calls for an increase in “low emission and renewable energy”. The last-minute inclusion of “low emission” sparked controversy, with some commentators fearing this opens the door to increased investment in non-renewable energy sources, such as nuclear, bioenergy, or even gas power. Only time will tell whether petrostates use such language as a basis to justify continued fossil gas production in future, but the signal the agreement sends on the urgent need for scaling renewables in the immediate and long term is crystal clear.
Finally, after years of wrangling, the top line rules underpinning the trade of carbon credits between nations under the guise of the Paris Agreement were agreed at COP26 last year. But the technical details underpinning these rules were not, and they formed the basis of complex and fraught talks in Sharm El Sheikh that in the end largely deferred key decisions until next year.
Concerns abound over rules governing transparency and credibility of carbon credits, with some nations more keen to show their working than others, and on whether countries should be able to ‘double count’ the emissions offset by a single project. Few of these issues have been resolved, but all of them will need to be if an effective global UN-backed carbon market is to ever become operational. The message sent to markets by any final rules established under Article 6 of the Paris Agreement are likely to be hugely consequential for the future of carbon trading as a whole in future, so getting them right and ensuring they are robust is seen as critical. Still, as frustration builds over the lack of progress on Article 6, attention is sure to increasingly turn towards voluntary carbon markets.
There was little notable progress on the promised $100bn a year in climate finance that richer nations are still failing to collectively deliver to developing countries, an issue that has dogged UN climate talks for years, with hopes they might finally meet the funding goal by next year, when the focus will shift towards setting an even higher, post-2025 climate finance target.
But in the continued absence of that full $100bn at COP27, attention turned towards other means of boosting flows of climate finance that do not rely on stretched government coffers. To that end, several influential figures used COP27 to ramp up calls for transformational reforms to global financial architecture through a package known as the Bridgetown Agenda, in order to build a more progressive system to support developing nations currently facing high capital costs for investing in zero carbon and climate resilient infrastructure.
The stage was set by a speech during the first week of the summit from Barbados Prime Minister Mia Mottley, who has championed the Bridgetown Agenda on the global stage. She called for developing nations facing climate impacts to be able to take advantage of Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) as a means of supporting their efforts to tackle climate impacts. She quickly won others round to her cause, including French President Emmanuel Macron, with momentum continuing to build around the idea of reforming the entire global financial architecture - including the World Bank and other multilateral development banks (MDBs) – to give it a far clearer climate mandate.
Indeed, the final cover text gavelled through at COP27 explicitly calls for MDB shareholders and international
The IMF headquarters building,
Washington, US
The global energy crisis has exposed the expense and risk of fossil fuels
Unlike last year, which delivered a flurry of major national climate targets and strategies, little was announced in the way of fresh NDCs or national climate policies at COP27. However, there were some significant developments. The EU said it plans to increase its 2030 decarbonisation goal by two percentage points, while Mexico also upped its 2030 ambitions, and Turkey unveiled a new climate target for the end of the decade (although it was branded as insufficiently ambitious by campaigners). Perhaps most significant was the unveiling of India’s plan to deliver on its target announced last year to achieve net zero by 2070, a transformational ambition for one of the world’s biggest emitters. There were clear signals to businesses and investors that in many key markets, decarbonisation and clean tech deployment efforts are accelerating.
However, the vast majority of countries did not strengthen their NDCs and the general consensus was that the Summit did not do nearly enough to accelerate action to drive down emissions. The final COP27 text re-emphasised 1.5C as the critical threshold and requests countries yet to do so to “revisit and strengthen” their 2030 climate goals by the end of next year. But despite a strong push from High Ambition Coalition of nations, including small island states, the UK, the EU, and others, there is no reference in the text to the need to peak global emissions by 2025 in line with climate science. A separate document concerning the UNFCCC ‘work programme’ for scaling up decarbonisation efforts in the 2020s was also greeted as a damp squib by developed countries, due to its lack of strong calls for new targets nor any links to the pledges made in Glasgow.
Reports suggested that a small group of petrostates ruthlessly blocked any attempt to secure a more ambitious agreement that would have set a clearer target for ensuring emissions peak in the next few years.
However, there were still some sources of optimism when it comes to climate mitigation and some pretty clear signals to businesses and investors.
High Ambition Coalition was clear on its desire for bolder action on climate mitigation and will come back to COP28 next year with even more ambitious asks.
For businesses, there was no sense of backsliding on net zero ambitions from the world’s most important markets and plenty of signals that decarbonisation policies will become more ambitious over time. The petrostates are fighting a rear-guard action.
Flooding in Pakistan
Luiz Inácio Lula da Silva's election as Brazilian president gives hope to the Amazon rainforest
Outside the direct UNFCCC process, meanwhile, there were also a flurry of initiatives and fresh announcements on nature at COP27. The AIM for Climate initiative, which is geared at ramping up investment in climate-smart agriculture, amassed $8m in new backing from government partners including the UK, US, Australia and the EU, while several leading food firms detailed a plan to eliminate commodity-driven deforestation from their supply chains for soy, beef and palm oil by 2025. The Forest and Climate Leaders’ Partnership was also established, which will see an initial 20 countries meet twice a year to track commitments toward the declaration made at COP26 by hundreds of nations to halt and reverse forest loss by 2030.
concerted action at both COP15 next month and COP28 next year.
Across the board, the pressure on companies to ensure their supply chains are legally compliant and are not damaging and degrading nature is only going to intensify.
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Loss and Damage
Bridgetown Agenda
Clean tech and fossil fuels
National climate pledges
Article 6 and carbon markets
Despite disappointment that the final agreement in Sharm El Sheikh failed to directly mention the upcoming UN Biodiversity Summit in Montreal next month, where there are hopes of brokering a landmark global treaty to halt and reverse nature loss, COP27 nonetheless delivered a number of firsts for the recognition of the role of the natural world in the climate fight.
For the first time in a COP cover text, nature-based solutions, oceans, and forests were all specifically namechecked, with calls for their inclusion in NDCs, underscoring growing awareness of the interconnected plight of both the planet’s climate as well as biodiversity.
The UNFCCC has a separate workstream focused on agriculture and food security as part of the COP process, which has looked at the role of soils, nutrient use, water, livestock and adaptation since it began five years ago. At COP27, nations agreed to continue this work – dubbed the Koronivia Dialogue - for another four years, and amid global food shortages and growing calls to address the carbon footprint of the meat industry, agriculture is sure to become an increasingly crucial topic in annual climate talks. Hardly surprising, perhaps, given it accounts for a huge chunk of emissions.
Nature and agriculture
Public-private partnerships
Editor, BusinessGreen
Michael Holder
CORPORATE
COMMITMENTS
It is a matter of intense debate as to how successful the Summit was when measured against this new remit. It delivered a breakthrough agreement on climate financing in the form of a deal on the formation of a new Loss and Damage Fund and provided a platform for a fresh array of government and private sector climate initiatives. But it was also accused of failing to do nearly enough to advance decarbonisation efforts and of defending the interests of petrostates and the fossil gas industry.
This Briefing Paper takes a look at the key agreements and announcements from COP27 and their implications for the business and investment community. There was, as ever, a lot to consider.
It did not enjoy the same profile as the COP26 in Glasgow last year, which was set up to finalise the rulebook of the Paris Agreement and call on countries to strengthen their national climate action plans, or Nationally Determined Contributions (NDCs) in the UN jargon. But the relative success of the Glasgow Summit in delivering on those tasks meant the Sharm El Sheikh Summit marked the start of a new era of COP Summits. With no technical negotiations over the rulebook to focus on, COP27 was tasked more with enacting the Paris Agreement and accelerating real world progress. As such, the Egyptian hosts dubbed the meeting an ‘Implementation Summit’, and the final agreement was labelled the Sharm El Sheikh Implementation Plan.
The COP27 Climate Summit in Sharm El Sheikh, Egypt, which ran from 6th November until its eventual close two days past its official deadline on 20th November, was one of the most significant COPs in recent years.
Sharm El Sheikh Summit
How else to tackle an existential crisis of global proportions that affects every single square metre of the planet and all life upon it if not through a multilateral, if inherently flawed, decision-making process? And how to drive that process without countries meeting? No one government or company can solve climate change alone, which is why they get together at COP each year, and why the market and policy signals sent out from the event – the positive and negative - have widespread, critical implications for business.
As ECIU’s Richard Black, a veteran of annual UN climate summits stretching back decades, is fond of saying: “For all its faults, if the UNFCCC didn’t exist, you would have to invent it. Because there has to be a forum where every government gets to represent its people on climate change.”
Even though the Paris Agreement ‘rulebook’ was largely finalised in Glasgow last year, that work continued at COP27 in Sharm El Sheikh, where crucial issues surrounding climate finance, mitigation, adaptation funding, loss and damage, carbon markets, and clean energy were all under discussion. Increasingly, too, the annual summits are becoming platforms for announcing or establishing major national and private sector partnerships, pledges, and policies that can help accelerate decarbonisation efforts further.
None of that was achieved overnight, but through painstaking, ongoing work to ensure the global governance architecture is working as effectively and efficiently as possible to drive smooth, fair, and rapid decarbonisation.
Moreover, the very concept of ‘net zero’ emissions and the need to get there by mid-century is derived from the text of the Paris Agreement. Without that treaty and the UNFCCC process, it is impossible to imagine 90 per cent of global GDP being covered by net zero targets, as it is today. There are lots of legitimate questions about whether those targets are credible and whether they will be met, but it was the Paris COP that clearly established the climate goals that governments and businesses are now working towards, providing a clear framework for future progress. Policies driven by the decisions made at COPs have unlocked billions of dollars of investment in the net zero transition, the single most important economic trend for the rest of the century.
In the seven years since the Paris Agreement was struck at COP21 in 2015, policies and investments enacted in its wake have bent the curve of likely future temperature increases from a terrifying worst-case scenario of 4.8C by the end of the century, down to well under 3C. Far more detailed policy action is clearly still needed to get onto a 1.5C or 2C pathway, but if current national pledges and targets are met, it would put the world on track for 2.4C of warming, according to the Climate Action Tracker initiative. That is, by any measure, a significant shift in the temperature dial within seven years, which can largely be credited to the progress unleashed by the Paris Agreement.
For that reason, securing meaningful progress can feel like a slog, and rarely if ever is anything achieved at the pace and scale required. But while figures from across the political spectrum each year predictably dismiss the multilateral process established by the UN Framework Convention on Climate Change (UNFCCC) as a waste of time, the real-world evidence suggests otherwise.
On the sidelines of COPs, there is a metaphor you will occasionally hear that serves to underscore the scale of the diplomatic task. Try to imagine 200 friends, foes, family members, and neighbours attempting to decide where and what to eat for dinner, and everyone – children, meat eaters, vegans, coeliacs, diabetics, and those with nut allergies – having an equal say. What’s more, everyone has very different budgets and they all have to agree to eat at the same restaurant, or no one eats at all. Then, at the end of the meal, they have to work out how to fairly split the bill, a recipe for disagreements that leaves many heading home with a sour taste in their mouths. Oh, and the future habitability of the planet depends on the outcome of said meal. That, perhaps, offers a small sense of the diplomatic challenge involved at a UN Climate Summit.
COPs are a lot of things. They are chaotic, complex, wearisome, insipid, depressing, stressful, important, infuriating, and inspiring, and all within the space of just a fortnight. But while there is arguably a strong case for operational reforms of the annual summits, no one can credibly argue COPs don’t matter.
Introduction
Indeed, the final cover text gavelled through at COP27 explicitly calls for MDB shareholders and international financial institutions to better align and scale up their funding around climate finance, address climate risk, and “deploy a full suite of instruments” to in the climate fight.
As the cover text notes, delivering the scale of finance needed to fight climate change “will require a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors”. Pressure on global financial institution and MDBs for change is sure to mount over the coming months, with all eyes on crucial spring meetings at the World Bank, IMF and others next year to see how and if they respond.
The text represented a major win for the Bridgetown Agenda and adds further momentum to a campaign that feels increasingly unanswerable. There will inevitably be some push back to such drastic reforms from within the World Bank and IMF, but equally both institutions increasingly recognise the need for them to respond to escalating climate crises that could derail their core remit of driving economic development and maintaining economic stability.
Again, the implications for the private sector are obvious. The reforms proposed by Mottley and others rely heavily on private finance being leveraged in to deliver net zero and climate resilient infrastructure projects. The direct investment, loan guarantees, and concessional finance delivered through the World Bank and MDBs are all designed to pull in more private sector investment and mobilise projects that can have a catalysing impact on green economies worldwide. Done right, immense business and investment opportunities should flow from this vision for a Bretton Woods 2.0.
The stage was set by a speech during the first week of the summit from Barbados Prime Minister Mia Mottley, who has championed the Bridgetown Agenda on the global stage. She called for developing nations facing climate impacts to be able to take advantage of Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) as a means of supporting their efforts to tackle climate impacts. She quickly won others round to her cause, including French President Emmanuel Macron, with momentum continuing to build around the idea of reforming the entire global financial architecture - including the World Bank and other multilateral development banks (MDBs) – to give it a far clearer climate mandate.
The IMF HQ building,
Washington, US
There was little notable progress on the promised $100bn a year in climate finance that richer nations are still failing to collectively deliver to developing countries, an issue that has dogged UN climate talks for years, with hopes they might finally meet the funding goal by next year, when the focus will shift towards setting an even higher, post-2025 climate finance target.
But in the continued absence of that full $100bn at COP27, attention turned towards other means of boosting flows of climate finance that do not rely on stretched government coffers. To that end, several influential figures used COP27 to ramp up calls for transformational reforms to global financial architecture through a package known as the Bridgetown Agenda, in order to build a more progressive system to support developing nations currently facing high capital costs for investing in zero carbon and climate resilient infrastructure.
Bridgetown Agenda
There was also progress on adaptation finance, with new pledges totalling more than $230m made to the Adaptation Fund to support vulnerable nations. And while there was no explicit mention in the final main cover text agreement of the ambition for developed countries to double adaptation finance this year, the UNFCCC has been tasked with reporting back next year at COP28 on progress towards the goal. Moreover, COP27 saw nations agree a pathway to establishing a Global Goal on Adaptation next year, which would provide an adaptation equivalent to the 1.5C emissions goal.
Multilateral efforts to mitigate climate change remain sluggish, but COP27 showed how focus and funding are increasingly contending with the worsening impacts of climate change, whether through more resilient infrastructure and agriculture, or insurance, reconstruction, and direct aid.
The business implications are obvious: the deal on Loss and Damage means all governments now have even more reason to invest in enhancing climate resilience and adaptation measures, while the increasing flow of climate finance into developing economies will bring with it massive clean tech and green business opportunities for firms that can aid and enable low carbon development. Businesses and investors can expect climate resilience and sustainable development to be pushed further up the global policy agenda, despite the current economic headwinds and concerns over energy security.
But whatever battles lie ahead, the symbolic admission from developed nations of their moral obligation to support countries facing climate losses and damages was palpable at COP27, and came backed with more money than ever, albeit at levels that are still orders of magnitude below what is needed. All in all, climate funding pledges from rich nations totalling more than $300m were announced in Sharm El Sheikh towards a mix of Loss and Damage initiatives. The bulk of that funding – around $220m – was earmarked for the Global Shield against Climate Risks, a new initiative designed to quickly deploy financial support in response to climate-related disasters, led by Germany with the backing of the G7 and 58 climate vulnerable nations.
On top of that, the UK unveiled plans to offer debt holidays to countries reeling from climate disasters, enabling them to defer debt payments in the event of a crisis, thereby freeing up more sources to fund disaster relief. Developed nations, under pressure, are increasingly coming forward with innovative new financing solutions.
Climate funding pledges from rich nations totalling more than $300m were announced in Sharm El Sheikh
For around three decades such nations have sought a funding mechanism for Loss and Damage, only to see their efforts stymied by the implacable opposition of industrialised economies that have long feared the formation of such a fund would require a tacit admission of liability on their part that could leave them open to unlimited claims of climate ‘compensation’ or ‘reparations’. The relaxation of the negotiating red lines of the EU and EU represented an historic breakthrough for the talks.
But even though a Loss and Damage fund has been promised, many battles lie ahead as to what the fund should look like, how it should be governed, what its remit should be, which countries should pay into it, and which should be eligible recipients. Getting nations to cough up will be a challenge. The EU, US, and their allies argue bigger, emerging economies such as China and Saudi Arabia – historically classed as developing nations – should be ineligible from receiving Loss and Damage funding, and should instead be among those richer nations paying into the fund.
But China and others are keen to maintain the status quo. The new committee tasked with navigating this particular geopolitical minefield and recommending how the fund should work faces a hugely difficult task. As such, there is scepticism as to whether a fully operational Loss and Damage fund is likely be delivered within just one year, despite the fact any delays would leave poorer climate vulnerable nations furious.
Flooding in Pakistan
In Sharm El Sheikh this year, debates over finance dominated proceedings more than ever, most notably over ‘Loss and Damage’, which became the defining issue at COP27 after climate vulnerable nations successfully lobbied to put the issue onto the main summit agenda. Why should poorer nations be made to pay for global warming impacts caused by richer, industrialised nations, they asked? The case for the ‘polluter pays’ principle has only been made stronger by the growing prominence of climate impacts worldwide, such as the devastating floods that left a third of Pakistan under water this year, and worsening famine in east Africa.
In the end, after talks ran deep into overtime, differences that once seemed irreconcilable were overcome in an historic deal to set up a new Loss and Damage fund for assisting developing countries “that are particularly vulnerable to the adverse effects of climate change”. A new committee is set to meet before March, before making recommendations on how to operationalise the new fund at COP28 in the United Arab Emirates (UAE) in December 2023.
With the world having now (mostly) coalesced around the scientific evidence underpinning the climate crisis and the set of targets this evidence implies is necessary, issues surrounding money have increasingly come to the fore at COPs in recent years, exposing the stark division in priorities between richer and poorer nations.
When looking at the sums, it is easy to see why: by some estimates $125tr may be needed over the next 30 years to fund the global net zero transition, while adapting to already baked-in changes to the climate could cost up to $340bn a year by 2030, and dealing with the damaging after-effects of global warming impacts could run to as much as $1.8tr in 2050.
Loss and Damage
FINANCING CLIMATE ACTION
Controversy remains over the effectiveness of the voluntary carbon market, but US Climate Envoy John Kerry is certainly a vocal fan of the approach. On the sidelines of COP27, he announced plans to design an Energy Transition Accelerator to help channel billions of dollars of investment into phasing out fossil fuels and ramping up clean energy through the wider use of carbon credits.
Kerry touted the scheme as a means of corporates and private investors offsetting their own emissions by investing in energy transition efforts in developing nations. Details are far from being worked out, and questions will continue to be asked about the viability and credibility of credits under the initiative, but as the US struggles to convince Congress to step up to the plate on the nation’s climate finance commitments, expect many more such efforts to tap into carbon trading as a potential means of filling the gap.
There are two significant implications for businesses from this activity. The first is that carbon offsets provided by either technology or nature-based projects are not going anywhere and the market is set to keep on growing. The second is that the scrutiny on these projects is more pronounced than ever and any businesses that get involved in the market have to do their due diligence to ensure projects are credible and deliver promised emissions savings.
Article 6 and carbon markets
Finally, after years of wrangling, the top line rules underpinning the trade of carbon credits between nations under the guise of the Paris Agreement were agreed at COP26 last year. But the technical details underpinning these rules were not, and they formed the basis of complex and fraught talks in Sharm El Sheikh that in the end largely deferred key decisions until next year.
Concerns abound over rules governing transparency and credibility of carbon credits, with some nations more keen to show their working than others, and on whether countries should be able to ‘double count’ the emissions offset by a single project. Few of these issues have been resolved, but all of them will need to be if an effective global UN-backed carbon market is to ever become operational.
The message sent to markets by any final rules established under Article 6 of the Paris Agreement are likely to be hugely consequential for the future of carbon trading as a whole in future, so getting them right and ensuring they are robust is seen as critical. Still, as frustration builds over the lack of progress on Article 6, attention is sure to increasingly turn towards voluntary carbon markets.
Nature and agriculture
But it was the election just prior to the Summit of Luiz Inácio Lula da Silva as Brazil’s new president, which delivered arguably the biggest boost for nature and climate action at COP27. Lula was treated to a hero’s welcome at the summit, as he promised to re-engage Brazil with global climate and environmental efforts, end deforestation in the Amazon, and support regenerative farming. Amid fears the destruction of the Amazon is reaching a ‘tipping point’, Lula also joined with Indonesia and Democratic Republic of Congo – the world’s three largest rainforest nations – in formally launching a partnership to cooperate on forest conservation. He even launched a bid for Brazil to host the COP30 summit in the Amazon region in 2025. With an ambitious Brazil back in the climate fold after several years of record deforestation levels under outgoing president Jair Bolsonaro, it may provide a much-needed fillip for concerted action at both COP15 next month and COP28 next year.
Across the board, the pressure on companies to ensure their supply chains are legally compliant and are not damaging and degrading nature is only going to intensify.
Luiz Inácio Lula da Silva's election as Brazilian president gives hope to the Amazon rainforest
Outside the direct UNFCCC process, meanwhile, there were also a flurry of initiatives and fresh announcements on nature at COP27. The AIM for Climate initiative, which is geared at ramping up investment in climate-smart agriculture, amassed $8m in new backing from government partners including the UK, US, Australia and the EU, while several leading food firms detailed a plan to eliminate commodity-driven deforestation from their supply chains for soy, beef and palm oil by 2025. The Forest and Climate Leaders’ Partnership was also established, which will see an initial 20 countries meet twice a year to track commitments toward the declaration made at COP26 by hundreds of nations to halt and reverse forest loss by 2030.
Despite disappointment that the final agreement in Sharm El Sheikh failed to directly mention the upcoming UN Biodiversity Summit in Montreal next month, where there are hopes of brokering a landmark global treaty to halt and reverse nature loss, COP27 nonetheless delivered a number of firsts for the recognition of the role of the natural world in the climate fight.
For the first time in a COP cover text, nature-based solutions, oceans, and forests were all specifically namechecked, with calls for their inclusion in NDCs, underscoring growing awareness of the interconnected plight of both the planet’s climate as well as biodiversity.
The UNFCCC has a separate workstream focused on agriculture and food security as part of the COP process, which has looked at the role of soils, nutrient use, water, livestock and adaptation since it began five years ago. At COP27, nations agreed to continue this work – dubbed the Koronivia Dialogue - for another four years, and amid global food shortages and growing calls to address the carbon footprint of the meat industry, agriculture is sure to become an increasingly crucial topic in annual climate talks. Hardly surprising, perhaps, given it accounts for a huge chunk of emissions.
Meanwhile, COP27 also saw the establishment of a new five-year joint work programme aimed at accelerating the deployment of transformative climate technologies in “high potential sectors” across water, energy, food, industry, and more. And the cover text highlighted how a technology work programme could prove hugely supportive in helping countries establish national innovation systems, technology roadmaps, and better incorporating clean tech into their NDCs.
Again, the direction of travel is clear for businesses and investors. Clean technologies are in favour with governments globally, and fossil fuels are going to face ever more regulatory and policy pressure. The text may help enable more investment in carbon capture and storage and other fossil fuel-based technologies, but it is increasingly clear the majority of governments want renewables to emerge as the backbone of the global energy system.
More positively, too, clean technologies received a boost in the final cover text agreement, which namechecks renewables several times, including through calls for an increase in “low emission and renewable energy”. The last-minute inclusion of “low emission” sparked controversy, with some commentators fearing this opens the door to increased investment in non-renewable energy sources, such as nuclear, bioenergy, or even gas power. Only time will tell whether petrostates use such language as a basis to justify continued fossil gas production in future, but the signal the agreement sends on the urgent need for scaling renewables in the immediate and long term is crystal clear.
All in all, COP27 served to ratchet up greater pressure for progress on mitigation at COP28 next year. Much of that pressure will likely fall on the language in the final text on fossil fuels, after India’s bid to include a pledge seeking a “phase down” of all unabated fossil fuels rather than just unabated coal power did not make it into the text in the face of fierce opposition from the likes of Saudi Arabia.
However, some 80 nations apparently backed India’s push – with even the US and Canada coming around to the idea during the final hours of the summit – setting the stage for a major fight in the UAE. It remains faintly ridiculous that in 30 years of COP summits there is still a refusal to openly acknowledge the role of fossil fuels in the climate crisis, but the tide is rapidly turning, hastened by the current global energy crisis that has exposed how expensive and risky hydrocarbons are.
Clean tech and fossil fuels
The global energy crisis has exposed the expense and risk of fossil fuels
Moreover, the High Ambition Coalition was clear on its desire for bolder action on climate mitigation and will come back to COP28 next year with even more ambitious asks.
For businesses, there was no sense of backsliding on net zero ambitions from the world’s most important markets and plenty of signals that decarbonisation policies will become more ambitious over time. The petrostates are fighting a rear-guard action.
An uplifting report from the ECIU think tank released during the summit indicated the EU, India, US, and China are all on track to deliver faster progress towards a clean energy economy than they have set out so far in their NDCs, largely thanks to the rapid deployment of electric vehicles, renewables, and other clean technologies. The International Energy Agency used the Summit to again stress that it expects global energy-related emissions to peak very soon.
COP27 may have broadly failed to build on the level of ambition for mitigation that was established at COP26 in Glasgow last year, but there are hopes that some key players, such as China and the US, could yet move to strengthen their national plans next year, especially given the surprise passage of the Biden administration’s climate bill in the form of its Inflation Reduction Act.
But despite a strong push from High Ambition Coalition of nations, including small island states, the UK, the EU, and others, there is no reference in the text to the need to peak global emissions by 2025 in line with climate science. A separate document concerning the UNFCCC ‘work programme’ for scaling up decarbonisation efforts in the 2020s was also greeted as a damp squib by developed countries, due to its lack of strong calls for new targets nor any links to the pledges made in Glasgow.
Reports suggested that a small group of petrostates ruthlessly blocked any attempt to secure a more ambitious agreement that would have set a clearer target for ensuring emissions peak in the next few years.
However, there were still some sources of optimism when it comes to climate mitigation and some pretty clear signals to businesses and investors.
National climate pledges
COP27 took place against one of the most challenging geopolitical backdrops in UNFCCC history, with an already vulnerable global economy reeling from the pandemic now this year facing soaring fossil fuel prices, food supply shortages, devastating climate-driven disasters, and the fallout from Russia’s war in Ukraine.
Such distractions no doubt played a sizeable role in slowing progress towards cutting emissions in Sharm El Sheikh, with only around 30 nations submitting updated climate plans or NDCs in the run up to and during the summit. That is despite all 194 parties to the Paris Agreement last year signing off on the Glasgow Climate Pact, which called on signatories to revisit and update their NDCs ahead of COP27 if they were not currently in line with a 1.5C warming scenario.
Mitigation
Outside the main country-led negotiations, COPs have increasingly become a stage for launching non-state or public-private initiatives, and amid a disappointing lack of progress on mitigation in the final decision text in Egypt, these various announcements provided some of most eye-catching news from COP27.
From a business point of view, among the most consequential announcements from Sharm El Sheikh was the launch of stringent, UN-sponsored ‘red lines’ for companies looking to establish net zero emissions targets. Developed by a High-Level Expert Group over the past year, the guidelines are aimed at stamping out corporate greenwash, by establishing challenging standards covering areas such as carbon offsets, fossil fuel investments, and lobbying activities.
The UN’s aim is to establish a single, global set of standards for what constitutes a credible net zero target, and in doing so it has raised the bar significantly. As it stands, most corporates will struggle to meet the standards proposed by the group, but the signal sent by the UN and COP27 nations about the paramount importance of credibility on net zero is loud and clear. Indeed, the High Level Expert Group’s recommendations for net zero goals were also welcomed in the final CO27 cover text agreement, which describes the framework as “designed to enhance the transparency and accountability” of pledges from businesses, investors and cities.
The heft of the US behind science-based corporate climate goals could transform the global drive to net zero
Carbon offsets provided by technology or nature-based projects are not going anywhere and the market is set to keep on growing
Will the global energy and food markets stabilise or is the world facing a period of sustained volatility?
Clean technologies are in favour with governments globally, and fossil fuels will face ever more regulatory and policy pressure
There has to be a forum where every government gets to represent its people on climate change
If current national pledges and targets are met, it would put the world on track for 2.4C of warming
So, with COP27 done and dusted, where does it leave us for the year ahead?
Most pressingly, eyes will turn to the COP15 UN Biodiversity Summit in Montreal, which kicks off in December after several pandemic-induced delays. The pressure is certainly on for nations to broker what would be an historic treaty to reverse the global biodiversity crisis from 2030, but this is far from a done deal. Hopes had been high that an ambitious outcome from COP27 that directly linked to climate and biodiversity negotiations could have helped inject momentum into the COP15 talks, which continue to attract far less attention than the climate talks, but that wasn’t to be. The presence of global leaders such as Brazil’s Lula, and Canada’s Justin Trudeau, however, may help bring some much-needed star power to proceedings.
Unlike last year, which delivered a flurry of major national climate targets and strategies, little was announced in the way of fresh NDCs or national climate policies at COP27. However, there were some significant developments. The EU said it plans to increase its 2030 decarbonisation goal by two percentage points, while Mexico also upped its 2030 ambitions, and Turkey unveiled a new climate target for the end of the decade (although it was branded as insufficiently ambitious by campaigners).
Perhaps most significant was the unveiling of India’s plan to deliver on its target announced last year to achieve net zero by 2070, a transformational ambition for one of the world’s biggest emitters. There were clear signals to businesses and investors that in many key markets, decarbonisation and clean tech deployment efforts are accelerating.
However, the vast majority of countries did not strengthen their NDCs and the general consensus was that the Summit did not do nearly enough to accelerate action to drive down emissions. The final COP27 text re-emphasised 1.5C as the critical threshold and requests countries yet to do so to “revisit and strengthen” their 2030 climate goals by the end of next year.