COP27 – using our influence to encourage action
12 October 2022COP27, the 27th United Nations Conference of Parties on climate change, takes place in Sharm-el-Sheikh, Egypt, 7-18 November. Its outcomes will be critical for shaping how climate-related risks and opportunities evolve. But after many pledges were made at COP26 in Glasgow last year, they are not being backed by credible action to achieve them. Global emissions are now higher than they were before the pandemic.
Ahead of and during COP27, we’re participating in initiatives to highlight both our climate change expertise and – with the attainment of global net zero objectives looking increasingly unlikely – the importance of COP27’s outcomes for investors. For every year that action falls short of what is necessary, achieving the objectives of the Paris Agreement is becoming more improbable.
What does COP27 need to achieve?
COP27’s success will rely on how it addresses the commitments and action plans made at COP26, to meet the goals of the Paris Agreement to limit global warming to well below 2°C, ideally 1.5°C, by 2050. The finance industry has an important role to play in directing capital where it can make the biggest difference – but achieving climate goals relies heavily on policy makers providing the right incentives through climate policies.
Eva Cairns, our Head of Sustainability Insights and Climate Strategy, reflects on the key areas of focus that COP27 needs to address:
“We believe that there are four interconnected gaps that need to be addressed at COP27:
- The ‘ambition gap’, to ensure commitments add up to 1.5°C
- The ‘credibility gap’, to implement binding actions and mechanisms to achieve targets
- The ‘justice gap’, to support the most vulnerable nations in the ‘Global South’
- The ‘adaptation gap’, to help protect against the increasing physical impacts of climate change.
Climate finance is a critical enabler to closing these gaps.
According to Climate Action Tracker, official country climate commitments – also known as Nationally Determined Contributions or NDCs – would only take us to a 2.4°C world. To close this ambition gap, countries were asked to come back with updated commitments at COP27 that more closely align with the 1.5°C goal. With the exception of Australia and India, few countries have meaningfully updated their NDCs.
The credibility gap is of major concern. Global pressures such as the war in Ukraine, and the related energy and cost of living crises, have seen climate action become less of a priority. Substantial fossil fuel subsidies and record deforestation levels do not instil much confidence in climate action being taken seriously. We have, however, seen some positive policy developments like the US Inflation Reduction Act, with a $370bn spend on climate and energy. More effective mechanisms are needed to ensure countries are held accountable for implementing action to achieve the commitments they made.
We also need to consider the justice gap, where the nations who are least responsible for global emissions are often most vulnerable to the physical impacts of climate change. These disastrous impacts are being experienced across the globe today, and a loss-and-damage finance facility is desperately needed to support the most vulnerable nations. Closely connected is the adaptation gap – the finance needed to help nations adapt to, and protect themselves from, physical climate risks as they become more frequent and severe. Developed nations need to make more binding commitments to finally deliver on their climate finance promise of $100bn a year to developing nations.
Expectations are not particularly high going into COP27. COP provides an important opportunity each year to reflect on what more needs to be achieved, but we have not seen enough evidence to give us confidence that the gaps will be closed. We may soon begin to see debate about the implications of not closing the gaps for corporates and investors with net zero commitments.”
How we’re engaging with COP27
In September this year we were one of more than 500 institutional investors who signed up to the 2022 Global Investor Statement to Governments on the Climate Crisis, calling for governments to strengthen climate policies and climate disclosure requirements. And as members of the Net Zero Asset Managers (NZAM) initiative, we aim to take the opportunity at COP27 to collaborate with peers - and to highlight that much more policy action is required to enable investors to achieve net zero 2050 objectives.
We will be supporting a number of events, including the World Climate Summit ‘Investment COP’, where we will be participating in the panel discussion on ‘2030 Transition-Ready Portfolios’. We are also partnering with organisations who include the Global Ethical Finance Initiative (GEFI) and the Institutional Investors Group on Climate Change (IIGCC).
Ahead of COP27, you can also register for the next of our Climate Action series of webinars, taking place on 19 October – where Eva and our team will be talking in more detail about the ‘credibility gap’ and how we address this in our investment approach.