The COP27 climate summit in Egypt in November 2022 came at a critical juncture, as the Asia Pacific region (APAC) works out how to deal with economic losses caused by increasingly frequent and severe weather events linked to climate change.
Moving into 2023, APAC financial institutions need to understand the opportunities and focus points arising from COP27 – more formally, the 27th Conference of the Parties of the UNFCCC (United Nations Framework Convention on Climate Change). Below, we walk through highlights including the new ‘loss and damage’ fund for developing countries, the Sharm El-Sheikh Adaptation Agenda, funding for renewable energy, and carbon market trading rules.
What opportunities does COP27 offer the APAC region?
• COP27 delivered a breakthrough agreement to launch a loss and damage fund for developing countries – including those within APAC – hit by future climate change disasters. This underlines the scale of climate-related challenges and opportunities in the region as Asia hosts 99 of the world’s 100 riskiest cities with regard to a range of environmental and climate-related risks.1 Still, significant operational and funding details will need to be worked out during 2023 and beyond.
• The Chinese climate envoy Xie Zhenghua said that “We strongly support the concerns from developing countries...because China is also a developing country and we also suffered a lot from extreme weather events."2 China and the US held constructive talks on climate change at COP27, as bilateral talks resume following the hiatus caused by tensions over Taiwan.
• The adaptation solutions defined in the Sharm El-Sheikh Adaptation Agenda signal a good start for APAC.3 The agenda will help accelerate future public and private investor collaboration towards climate financing to protect people living in the most climate-vulnerable areas within the region. Despite the progress, it’s worth noting that a long-standing goal for developed countries to mobilize US$100 billion per year in aid for climate-stricken developing countries has not yet been met.4
• The effort to channel trillions of dollars into green investments continues, with the Sharm el-Sheikh implementation plan highlighting the need to invest US$4 trillion per year into renewable energy up until 2030 to reach net zero emissions by 2050.5 APAC, which accounts for 60% of the global population,6 has the world’s fastest rising regional energy demand and as such is expected to benefit significantly. The region’s investment in renewable energy generation by 2030 may double from the previous decade to US$1.3 trillion, according to an earlier report by Wood Mackenzie.7
• Talks about carbon market trading rules made some limited progress. Clarification of the rules could help support a vibrant carbon market in Asia as the region has been stepping up its game on this front. Singapore plans to let businesses use carbon credits to offset some taxable emissions, China has commenced trading in its national carbon market in 2021, and the Hong Kong bourse operator recently launched an international carbon marketplace connecting Hong Kong, mainland China and Asia.
Implications for APAC financial institutions
• Financial institutions should prepare to meet higher standards regarding their net zero pledges. A UN report released at COP27 said that companies, banks and cities must work harder to avoid greenwashing and should report on alignment with net zero targets using verified, comparable information.8 The report recommends that financial regulators develop regulation and standards governing net-zero pledges. It calls for non-state actors to include specific targets to end the use of, and support for, fossil fuels and asks them not to invest in or finance businesses linked to deforestation. The UN report comes at a time when APAC countries and regional bodies are developing and releasing sustainability taxonomies to provide common sets of definitions; however, implementing the various taxonomies within a coherent framework represents an upcoming challenge for Asia-Pacific financial institutions.9
• COP27’s focus on the urgency of climate financing puts financial institutions such as multilateral development banks (MDBs) under scrutiny.10 The Sharm el-Sheikh implementation plan called on MDBs and international financial institutions to “scale up funding, ensure simplified access and mobilize climate finance.”11
• Financial institutions should continue to monitor APAC countries’ updates and other developments concerning Nationally Determined Contributions (NDCs) commitments to achieve net zero by 2050-2060, and prepare for a fast-changing regulatory landscape. Several APAC countries joined new deals during COP27: Australia joined the Membership of the Global Methane Pledge to cut methane emissions by 30%; Indonesia signed a US$20 billion Just Energy Transition Partnership (JETP) with the EU and other developed economies, to help the country move away from coal and expand renewable energies.12
Click here for our earlier article reporting on COP27 Week 1 and here for Week 2.
Soomin Park, Consultant, Capco
Shelley Zhou, APAC ESG Lead, Capco
1 Environmental Risk Outlook 2021, Verisk Maplecroft: https://www.maplecroft.com/insights/analysis/asian-cities-in-eye-of-environmental-storm-global-ranking/
3 Sharm-El-Sheikh Adaptation Agenda: The global transformations towards adaptive and resilient development (2022), COP27:
5 COP27 ends with announcement of historic loss and damage fund (2022), UNEP: https://www.unep.org/news-and-stories/story/cop27-ends-announcement-historic-loss-and-damage-fund
6 Policy Brief #19 – Achieving SDG7 In Asia and the Pacific (2018), UNESCAP: https://sustainabledevelopment.un.org/content/documents/17569PB_19_Draft.pdf
8 Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions (2022), United Nations’ High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities: https://www.un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf