Why is COP27 important?COP26 was marked by a swathe of pledges intended to keep the global net-zero 2050 objective within reach. COP27 is critical to ensure that those pledges are being updated and translated into credible action to hold temperature increases to 1.5°C above pre-industrial levels by the end of the century. Every year that pledges and actions fall short of what is necessary, the gap widens and achieving the Paris objectives becomes more improbable. For investors, it is critical that policy makers provide the right signals and incentives to enable capital allocation in line with net zero.
For investors, it is critical that policy makers provide the right signals and incentives to enable capital allocation in line with net zero.
Progress since COP26We have seen little progress to deliver on the pledges and promises made at COP26. Many of the pledges can only be described as ‘plans for plans’:
- Developed countries did not sufficiently update their 2030 commitments, nor did they scale up climate financing for the global south;
- There are still insufficient details around how pledges will be achieved or financed, and too much reliance on, as yet, undeveloped technologies;
- Carbon pricing remains a rarity covering around 20% of global emissions. Where it is in place, it is often far too low to incentivise decarbonisation;
- Climate action was put on the ‘back burner’ due to major global pressures – the Ukraine war, cost of living crisis and recession; and
At the same time, unprecedented climate hazards have impacted across the globe.
What does success at COP27 look like?We highlight four interconnected gaps that need to be addressed at COP27:
Closing the credibility gap -The credibility gap between pledges and binding action is failing to encourage corporate decarbonisation and incentivise investment. Over 90% of GDP are covered by net zero targets and 83% of emissions, but the reality looks very different:
- Emissions are still on the rise and increased by 6% in 2021;
- Deforestation in the Amazon reached record levels in 2022; and
- Fossil fuel subsidies amounted to $420bn according to a 2021 UN report.
Closing the justice gap - At the core of the climate justice gap is the fact that those that have contributed the least to global emissions, mainly in the global south, are often most vulnerable to the impacts of climate change. Climate finance of $100bn a year by 2020 was promised by developed nations to developing nations – this has not been delivered. Developed countries must take more responsibility and provide the necessary climate finance to address this gap at COP27, including:
- A binding commitment to climate finance that adds up to a minimum of $100bn from 2023
A dedicated loss and damage finance facility to support the most vulnerable countries
How likely is it that these gaps will be closed?
Unfortunately, expectations are low. Few countries seem willing to scale up their commitments and international cooperation will be harder to agree on given the current global economic and political environment. So it is likely to be another call to action, but probably a weak one with not enough carrots or sticks to ensure a positive outcome. Whilst there may be reluctance to officially recognise that 1.5°C alignment is now out of reach, post-conference commentary is likely to be dominated by the size of the gap between what is needed and what is being done. This will open up debate about the implications for climate commitments and the even greater importance of adaptation financing.
Next steps & our involvement
Will the climate impacts of the past year be a catalyst for aggressive action? Or have we finally left the last chance saloon and need to retreat to more attainable goals? For abrdn, these are vital questions.
Achieving our climate goals, and helping our clients reach theirs, is heavily reliant on the policy actions of government. The energy transition is happening, but not at the necessary speed and scale to reach net-zero by 2050. As signatories to the Global Investor Statement to Governments on stronger climate action launched on 13 September 2022, we urge governments to close the ambition and credibility gap. We, along with our financial industry peers, have a vital role to play in directing capital to where it can make the biggest difference. This is why we will be present and actively involved at this year’s conference - pro-actively collaborating with organisations, policy makers, investors and highlighting the actions we are taking.