What is COP27, why it matters and 5 key areas for action

World leaders and climate policy negotiators are meeting in Sharm El-Sheikh, Egypt this week for the 27th annual meeting of nations on climate change.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Louisiana Salge, 7th November 2022

As sustainable investment managers, EQ Investors (EQ) believes that investors hold critical influence over driving decarbonisation through voting and engagement and by funding climate solutions.

We already manage our portfolios with the expectation that climate change is a big threat to how economies are currently organised, and that those pockets contributing most to climate change will struggle with significant transition risks as nations implement their national climate commitments. However, to be proven right, we still need the policy, political and regulatory frameworks to fully align with our vision that net-zero 2050 is achievable.

What is COP27?

COP27 is the annual UN climate conference taking place in 2022. A ‘COP’ means ‘conference of parties’. The COP is a summit of all the countries that are part of the UN’s climate change treaty, the UN Framework Convention on Climate Change.

COP27 attendees will include governments and negotiators from across the world who will travel to the meeting to discuss how to keep temperature rises below dangerous levels.

Why it matters?

Action on the widespread commitments made at the last UN climate conference – COP26 in Glasgow by countries and companies alike, is lacking. Current targets send us on a 2.5 degree pathway, and the target of 1.5 degrees of warming since pre-industrial levels is moving further out of reach day by day.

We need COP27 to focus on concrete, effective implementation of commitments. World leaders in Egypt must make sure that the following themes are top of the COP27 agenda.

1. Exchange on effective policy mechanisms to implement NDCs. Building on the US’s inflation reduction act and RePowerEU plan of this year, we need to see more announcements on concrete policy mechanisms in line with limiting warming to 1.5 degrees.

Making a “competitive race” out of creating real regulatory climate mitigation incentives would be welcome. EQ has signed the 2022 Global Investor Statement to Governments on the Climate Crisis to demonstrate we would support greater interventions.

2. Clarity over the definition, sources, and target of committed “climate financing”. Glasgow resulted in a flurry of asset managers, owners and banks committing to invest “in line with net zero”. Public finance was also pledged. However, the $100bn target of climate finance for developing markets was not reached once again.

Committed finance remains in liquid, developed markets and this alone will not create the most efficient climate mitigation impacts. COP27 must bring more transparency on targets and potential mechanisms for scaling up financing to where it is most needed.

3. Bring rigour and transparency to global carbon credit market. At COP26, the passing of “the Article 6 rulebook” was a breakthrough moment for moving us closer to a market mechanism for carbon pricing and carbon credit trading. Now we need an agreement on the practical administration and implementation of these rules.

While we cannot rely on carbon offsets, they play an important role for accounting for the uneven global sinks and emission sources. Progress here is also important to cut across the unstandardised nature of current carbon “offset” markets, attract private-sector investment and help well-intentioned funding achieve real additionality on climate mitigation.

4. A re-focus on adaptation funding. All of us will experience the effects of climate change under any degree of warming, in fact we already are. It is Africa’s COP, a continent which is disproportionately affected by climate impacts yet contributes least. We expect negotiations around building a legal “loss and damage” responsibility framework, which essentially could result in costs put on the legacy contribution to climate change by some big polluting countries and potentially companies.

This is a highly emotive issue and has been a sticking point for COP for some time, yet it is increasingly important to unify countries in a common fight.

5. Biodiversity loss is linked to climate change and should be more explicitly integrated to targets. Last year we saw 100 leaders pledge to end deforestation by 2030, highlighting the relevance of healthy forests for climate stability. Despite December’s UN Biodiversity Conference bringing us the promise of global nature-based global targets, the co-benefits need to be addressed in nations’ climate policies to avoid working against each other.

This will be helpful for investors who, through TNFD, are starting to integrate biodiversity into risk assessments and company engagement.

We look forward to seeing the news coverage over the next few weeks, and hope that in the longer-term we can expect a full move away from high-level commitments, towards including tangible implementation show-and-tell and collaboration.

Contact Louisiana

    Louisiana Salge

    Louisiana is Head of Sustainability at EQ. She is responsible for innovating EQ’s approach to sustainable investing, oversees EQ’s ESG and impact integration strategy across all assets, EQ’s stewardship efforts and sustainability data reporting.

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