COP27 key issues and takeaways for business
The 27th annual Conference of the Parties (COP27) has just concluded.
The hard work is still to come. COP27 was labelled the ‘Implementation Summit’ yet the reality is that not nearly enough has been done over the past year on emissions mitigation plans, adaptation transition strategies and using the power of business expertise and finance to find workable solutions. Even considering the enormous disruptions caused by Russia’s invasion of Ukraine, we need focus on COP28 to fill the many gaps left in Egypt.
COP27 brought together more than 45,000 participants to share ideas and solutions, and build partnerships and coalitions to address the climate crisis. Indigenous peoples, local communities, cities, and civil society, including youth and children, showcased how they are addressing climate change and shared how it impacts their lives.
What key issues were discussed at COP27?
- Climate Change Mitigation
Limiting global warming to well below 2°C and work hard to keep the 1.5°C target by 2100 alive through efforts to reduce or prevent the emission of greenhouse gases (GHGs).
- Climate Change Adaptation
Extreme weather events - heatwaves, floods, forest fires and unseasonal changes - have become an everyday reality and scientists predict they will increase in severity unless we dramatically reduce our collective GHG emissions.
- Climate Finance
Raising and distributing climate finance for mitigation efforts such as renewable energy technology transfer to the Global South and adaptation projects such as ensuring food security in areas of increased drought was a key theme. A prominent target is the longstanding commitment to channel US$100 billion per year to climate challenged nations from 2020, to help them adapt to climate change and mitigate further rises in temperature. However, this target continues to be missed.
- Collaboration and Partnerships
Delivering the ambitious climate targets and finance will require deep and long-term partnerships across governments, the private sector and civil society.
Key COP27 outcomes and takeaways for business
Climate Damage and Loss fund established
COP27 ended with an historic agreement that Global North/developed nations would create a ‘loss and damage’ fund to help Global South/developing nations hit by the effects of climate change. Most Global South nations were delighted that the idea of a fund had been accepted, after 30 years of continued rejection. The high-profile agreement on the fund was overshadowed by complaints that Global North countries have still not met their target of mobilising $100bn a year in climate finance - a goal that was meant to be achieved by 2020. The next twelve months to COP28 will see extensive negotiations to finalise the details of the fund as Global North nations have not yet pledged any contributions or indeed accepted any liability - it has been emphasised that contributions to the fund will not be climate impact related ‘reparations’.
The crucial questions of where the money might come from and how it will be allocated has not been addressed, with Global North countries keen to see backing for the fund from high-greenhouse gas emitting Global South nations, especially China and India. A schedule for launching the fund will also have to be agreed. And few observers believe that whatever nations end up contributing, the fund will never be large enough to cover much of the loss and damage caused by climate change. As an example, compare the EU's €60m fund contribution pledge against the $30bn costs that Pakistan faces because of the 2022 floods.
Business takeaway
Following the work of the damage and loss fund’s committee tasked with establishing the governance and funding parameters will enable businesses to seek any alignment with their own climate change commitments and investments. Although the final details of the fund’s remit are not clear, it is likely that business will be asked to contribute to these efforts. An early engagement will give business the opportunity to demonstrate and strengthen climate leadership and the related willingness to find solutions that match the challenge of climate change related impacts.
Some fossil fuels get a break
The final COP27 text called for efforts to phase down use of unabated coal power through, for example, Carbon Capture and Storage Technology (CCS) and to phase-out inefficient fossil fuel subsidies. In contrast, the UN’s scientific recommendations and many countries including the EU had pushed for a complete phase out, or at least phase down, of all fossil fuels. This means the legitimate use of fossil fuels was affirmed for the near future with any changes in direction being pushed to COP28 in Dubai. The final text also includes a reference to ‘low emission and renewable energy’ which is seen as a significant loophole that could allow for the development of further gas resources – because gas produces fewer emissions than coal.
Business takeaway
It can reasonably be expected that gas rich nations and extractive companies will proactively position especially gas and hydrogen as lower carbon fuels able to bridge the energy gap left by a phase down of oil and coal. It will be interesting to see whether this strategy is compatible with global commitments to Net Zero emissions by 2050 and staying within the global carbon budget set by climate scientists.
Global heating target of 1.5°C looks weaker
The Paris climate accord and COP26 commitments to ensure global greenhouse gas emissions would begin to fall after 2025 to stay within 1.5°C global heating by 2100 were unfortunately slashed. Despite this setback all parties acknowledged that ‘limiting global warming to 1.5C requires rapid, deep and sustained reductions in global greenhouse gas emissions, reducing them by 43 percent by 2030 relative to the 2019 level.’
As noted above, there was no agreement on phasing down all fossil fuel production as the Intergovernmental Panel on Climate Change (IPCC) scientists recommended. In addition, only a few countries increased the ambition of their nationally determined contributions or their country specific emissions reduction plans and targets towards Net Zero by 2050.
Business takeaway
To meet the IPCC’s scientific recommendations to stay within 1.5°C will require all COP27 pledges and ambitions to be turned into actions and implementation. Governments, civil society and business will need to unite and share learnings to limit further global warming. All businesses regardless of size and maturity will need to measure their carbon footprint, understand and report on material climate risks using reporting frameworks like the Taskforce for Climate Related Financial Disclosures (TCFD) – and then urgently implement steps to mitigate their impacts.
Banks asked to reform climate funding
The COP27 text calls on ‘the shareholders’ of multilateral development banks (MDBs) and other financial institutions to reform ‘their practices and priorities’ to ‘ensure simplified access’ along with a call to ‘define a new vision’ so that they are ‘fit for the purpose of adequately addressing the global climate emergency.’
Global South nations in particular want to see these MDBs deploying a full suite of instruments, from grants to guarantees, rather than increasing existing debt burdens. Where climate related events like floods increase in frequency the logic follows that the country will be unable to repay existing loans for green infrastructure if that infrastructure is being repeatedly damaged or destroyed.
Business takeaway
Proponents of funding reform argue that changes such as increasing the capacity of MDBs to take risk could create hundreds of billions of dollars of extra funding, without obliging them to ask their shareholders for more money. This presents an opportunity for institutional investors, pension funds and private equity to partner with MDBs and put investment streams in play towards climate protection and wider sustainable development goals.
Adaptation gets new impetus
The COP27 adaptation agenda aims to mobilise $140-300 billion of private and public funding to support adaptation (adaptation refers to adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli or impacts). The agenda encourages 2,000 of the world’s largest companies to integrate physical climate risk, and to develop and share actionable adaptation plans.
Adaptation is an essential part of our collective fight against climate change. It is necessary to protect people around the world from the climate change that’s already in process, and it also brings huge opportunities to help the world’s population of 8 billion people transition to a more sustainable and secure way of life.
The COP27 adaptation agenda outlines 30 outcomes that could enhance resilience for 4 billion people living in the most climate-vulnerable communities by 2030, focused on five impact systems: water and biodiversity, coastal and oceans, human settlements, food and agriculture and infrastructure.
Business takeaway
In addition to any climate mitigation efforts, such as reducing operational emissions through the use of more renewable energy sources, organisations could study the risks in their value chains, identifying risk points, prioritising areas for adaptation, and supporting stakeholders in their supply chains with the technology, expertise and financial support that they need to adapt adequately.
Other notable COP27 initiatives and commitments
Carbon markets: Some forward steps were taken in drawing up a detailed framework for the functioning of global carbon markets but there were widespread concerns that the suggested rules are too lax and encourage minimal transparency.
Energy Transition Partnership (ETP): a $20bn deal to help Indonesia transition away from coal, using private and public investment as agreed with several Global North countries. It aims to support Indonesia in achieving a peak in its electricity sector emissions by 2030 to put them on a path to reaching net zero by around 2050. A similar ETP agreement for Vietnam is expected in 2023.
Biodiversity: The Enhancing Nature-based Solutions for an Accelerated Climate Transformation (ENACT) initiative was launched to enhance global nature-based solutions addressing climate change, land and ecosystem degradation, and biodiversity loss. Especially agricultural, forestry and other extractive industry partners are welcome to support and shape this initiative.
Sustainable Finance: two flagship initiatives were launched by the attending COP27 Finance Ministers: (1) the Reducing the cost of Green Borrowing initiative and (2) Sustainable Debt Coalition initiative, aimed at facilitating access to affordable green finance for climate positive initiatives in the Global South.
Youth and future generations: one thousand youth representatives from over 140 countries represented their key demands that paid specific attention to action for climate empowerment, adaptation and resilience and accessible finance.
The next year provides an opportunity for business to step up, grasp the initiative and become involved in the many programmes and projects that address the climate crisis.