WEEK ONE – SUMMARY & KEY TAKEAWAYS
Taking place this year in Sharm El-Sheikh, COP27 – the 27th Conference of the Parties of the UNFCCC (United Nations Framework Convention on Climate Change) – kicked off on November 6 with the key aim of ensuring full implementation of the 2015 Paris Agreement against a background of “unequivocal signs of the unfolding climate emergency…. simultaneous crises in energy, food, water and cost of living, aggravated by severe geopolitical conflicts and tensions… and inadequate ambition to curb greenhouse gas emissions”1 .
Progress since COP26 has been limited:
- Despite participants agreeing to submit ambitious climate plans following COP26, only 12% of nations met the UN deadline to submit climate commitments ahead of COP27.
- Many of those countries that submitted ‘updated’ plans did not expand the scope of their ambitions, according to the Climate Action Tracker – these include the US, China, India, Brazil and COP27 host nation Egypt2 .
- Moreover, many declarations still do not have the official endorsement of all member countries – including the landmark deforestation declaration, where only four additional nations have signed up since last November.
It was expected that several areas either resolved or addressed at COP26 would be picked back up at COP27:
- Loss and damage finance – money help countries recover from (rather just prepare for) the impacts of climate change, where devastation has already occurred and/or where damage cannot be mitigated (see below).
- A global carbon market – to be established to ‘price in’ the effects of emissions into products and services globally, thus incentivising climate-friendly investment.
- A reduction in coal usage.
The evolving ESG landscape
It is impossible to ignore the geopolitical and global landscape within which COP27 is taking place, as it must inevitably temper expectations of what outcomes the conference can deliver.
- Geopolitics, the oil crisis and their knock-on effects on energy prices have triggered not a perhaps expected doubling down on alternative energy sources but rather a retrogressive focus on fossil fuels. Affluent nations including the UK, US and EU member states have reopened domestic coal burning plants and turned to foreign oil and gas providers, with an obvious detrimental impact on longer-term climate change efforts.
- Russia and Ukraine are leading producers of fertiliser, so the invasion has led to fertiliser being sourced from alternative areas that utilise more energy and contribute towards rising living costs.
- With a global recession looming, the key question stands: will nations and the organisations operating within their borders continue to strive to meet climate and wider ESG goals, or will these imperatives be side-lined in the face of an ‘all hands to the pump/all bets are off’ short-term response to combat the immediate recessionary challenges?
- UK Prime Minister Rishi Sunak arguably answered that very question on day one of the conference, stating that “when people are worried about keeping the lights on, it’s not surprising that some voters also might feel less fussy about where their power comes from”3 .
Week 1 highlights
- The topic of loss and damage financing dominated discussions in the opening days of the conference. However, these talks were only added to the agenda at the last minute, following intense pressure from developing nations. As yet there remains no binding agreement over such payments, though the UK did confirm it would allow vulnerable countries hit by hurricanes and climate catastrophes to defer debt repayments. This is an incredibly salient topic, and so is expected to be a significant sticking point that will continue to cause tension long after COP27 draws to a close.
- The UK also announced an initiative to implement Climate Resilient Debt Clauses (CRDCs) in private sector lending, and called upon all creditors (including private banks, bilateral lenders, and international financial institutions) to adopt them. Government-backed UK Export Finance will become the first export credit agency globally to offer CRDCs, building upon the UK’s 2021 Climate Change Strategy and underlining the country’s commitment to ensuring the financial resilience of nations facing climate disasters.
- There was also continuity from the UK around key funding commitments, with Rishi Sunak committing to tripling its funding for climate adaptation from £500 million in 2019 to £1.5 billion by 2025.
- The UN published a USD120 billion commitment to support governments and investors in assisting poorer countries to manage climate change impacts and reduce overall emissions. These projects include a USD10 million public water system in Mauritius and a USD3 billion water transfer project between Lesotho and Botswana.
- The US showcased its plan for the development of a carbon credits market to finance the decommissioning of coal and accelerate clean energy in developing countries – the ‘Energy Transition Accelerator’. However, this drew criticism from climate groups, who argued that a voluntary carbon credit program will not provide a guarantee of real emissions cuts, and may in fact delay more effective efforts.
- The Biden administration called for federal contractors to publicly disclose information about their greenhouse gas emissions and the associated financial risks.
- Other topics included how carbon markets can function across the African continent, and the type of capital flows required to finance transition across emerging and frontier markets.
The focus of COP27 in week one largely leaned more towards the granular rather than bigger picture global themes. However, the macro topic of reducing carbon emissions did come to the fore at the close of week one, and is expected to remain a key focus during week two of COP27.
Olivia Cassidy, Consultant
Lauren Farrell, Associate
Thomas Oliver, Associate
Olaf Clemens, Global ESG Lead
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