COP27, the global conference of parties to the UN Framework Convention on Climate Change (UNFCCC), concluded its activities on November 20th, two days beyond the scheduled conference end. While there were some history-making agreements, they were ultimately overshadowed by a perception of stagnation when it came to taking a stand for climate action. Much like COP26, the parties reasserted the need to meet 1.5C target under the Paris Agreement but failed to make firm commitments on how to get there. In particular, the hotly debated issue of phasing out fossil fuel generated power and its related subsidies did not make it into the final draft text of COP27 overarching decisions. One bright spot was climate finance which played a significant role in the COP 2022 conference. Wealthy nations reaffirmed their financial support for a just and sustainable transition away from carbon and compensating poor countries for mounting damages from climate change.
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1. Phasing out/down fossil fuels fell flat
Lack of commitment around the complete phase-out fossil fuels to facilitate progress toward the Paris Climate Agreement goals was a lowlight of the conference. Despite support from at least 80 countries to include a stronger commitment for “phasing down” (not “phasing out”) all fossil fuels, it did not happen. Language to this effect was walked back to reflect a repeat of last year’s commitments at COP26. The final text includes no reference to “phasing out” or “phasing down” fossil fuels and instead urges countries to accelerate “efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies.” Unsurprisingly opposition to the stronger language came from oil and gas producing nations, including those in the middle east where COP27 was held, and other larger emitters. These major producers and emitters blocked proposals to limit fossil fuel use and touted carbon capture as a viable mitigation strategy in lieu of transition. Critics assert that the technology won’t scale fast enough to mitigate carbon emissions in time.
2. Wealthy nations pledge support to vulnerable nations, again
One highlight of the conference was an agreement by the parties to provide “loss and damage” financial support for developing and vulnerable countries most impacted by climate disasters. This includes many small island nations who are already dealing with the brunt of extreme weather events and rise in sea-levels. Wealthy countries, who have been the heaviest carbon emitters since the industrial revolution, committed to provide funding to these affected countries. Though agreement on this did not come easy, ultimately negotiators agreed on a loss and damage facility to provide financial support to these vulnerable countries.
It remains unclear, however, how, and when the fund will be implemented. Executive Director of Power Shift Africa, Mohamed Adow, remarked, “What we have is an empty bucket. Now we need to fill it so that support can flow to the most impacted people who are suffering right now at the hands of the climate crisis.” It’s also not the first time a pledge like this was made. In 2009 at COP15 in Copenhagen, wealthy nations committed to provide $100 billion annually to developing countries to help them adapt to climate change. While some funding was, in fact, provided, critics note that it has fallen short of the pledge every year since COP15. It’s also far below the UN’s estimate of $1.6 trillion-$3.8 trillion that will be required annually to avoid warming beyond 1.5C. By contrast, approximately $5.9 trillion was spent on subsidizing the fossil fuel industry in 2020 alone, according to the International Monetary Fund (IMF).
3. Independent actions are a bright spot
As the largest climate event globally, the annual COP summits provide an ideal platform for announcements by independent actors and alliances. In several cases, major players highlighted strong climate action. For example:
Finally, although not technically announced at COP27, the Corporate Sustainability Reporting Directive (CSRD) was adopted by the European Parliament and Council on November 11 and approved on November 28. It aims to make large businesses more publicly accountable for their societal and environmental impacts through more robust reporting requirements.
Additional positive developments
Despite contentious negotiations that extended the conference by a few days and a general sentiment of disappointment, the parties did agree to some other positive developments. These include:
In short, it’s unlikely that COP27 decisions will directly impact businesses in the short term. However, it is a bellwether for the direction that climate action is headed and the issues that are growing in importance for stakeholders. Certainly, some of the regulatory announcements that happened before and around COP27 confirm this. Businesses have an opportunity to stay ahead of these shifts by aligning their practices with the relevant broader ambitions of the conference. Specifically, these include transitioning to renewable energy, expediting decarbonization to achieve net zero emissions, and disclosing climate-related pledges and progress openly and transparently.
The prioritization of climate-informed finance and investment provides another opportunity (and potential risk) for businesses. Companies that align with growing expectations around climate risk and implement transition plans quickly will gain faster access to capital. However, those that remain resistant to the transition will risk losing access to capital, investors, customers and potentially their license to operate. Many of the regulatory developments are also focused on facilitating access to credible, investor-grade information that financial institutions need to efficiently allocate capital through this transition. These include a growing list of rules and legislation around climate risk and disclosures, such as those under the European Green Deal, UK Climate Act, and the US Securities and Exchange Commission.
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The outcomes of COP27 have reinforced the growing demand for true and accurate reporting on climate risks for investors and financial institutions, among a broader group of stakeholders. Through the OneTrust ESG cloud, you can accurately collect, action, and credibly disclose climate risks and impacts. This helps drive efficiency in your program and, most importantly, build trust with your customers, partners, and other key stakeholders.
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