What is COP27, and why is it important?
At the 27th annual Conference of the Parties, global government representatives, climate activists and business leaders will take stock of progress in the fight to reduce the impacts of climate change and will negotiate further action.
The United Nations’ annual climate conference becomes more urgent every year, as the fallout from climate change grows and the time dwindles to limit global warming to 1.5 degrees Celsius above preindustrial temperatures. At COP27, an ambitious agenda will contend with global energy and inflation crises that further complicate the economics and politics of climate progress.
What we’re watching
Finance had an enormous presence at COP26 in Glasgow. We do not expect as large a finance turnout at COP27, but we still anticipate major developments with the potential to alter the global climate landscape. COP27 is likely to focus on increasing the pace and scale at which governments move from climate pledges to implementation, along with calls for developed nations to meet and potentially expand financing commitments to developing nations.
Three major questions related to those themes loom over COP27:
Will major emitters commit to more ambitious GHG-reduction goals?
Meanwhile, developments related to Russia’s invasion of Ukraine could push major emitters India, China and Russia – which historically have not fully engaged with COP – further away from the negotiating table. Russia historically has been a conspicuous non-actor among major emitters, and we do not expect that to change.
What we’re looking for: Disclosure of progress and barriers related to commitments made in Glasgow, and the strengthening of countries’ emissions reduction targets per the Glasgow Climate Pact.
Will developed nations increase the pace of financing?
At COP15 in 2009, developed nations committed to providing $100 billion in annual financing for developing nations’ climate efforts by 2020. They have consistently fallen short of this target and have pushed out the target year to 2023. Meanwhile, the most vulnerable countries have received little of the financing that has been made available.
What we’re looking for: Greater certainty and action around the delivery of $100 billion annual financing.
Will governments develop a system for financing loss and damage?
At COP26, developing nations pushed for a sorely needed financing facility for loss and damage in addition to the $100 billion annual commitment. Developed nations resisted and instead established the Glasgow Dialogue on Loss and Damage, scheduled to last until 2024.
What we’re looking for: Agreement on an official mechanism with formalized funding arrangements to address loss and damage in the global south.
Implications for investors
But bringing private financing into the process will require new ways of thinking. Investors may need to innovate at a deep level to help make financing for climate action viable. The asset management industry may need to rethink asset classes, develop new mechanisms and/or create new ways to measure performance.
Yet the degree of risk in financing new climate solutions can be prohibitive for private investors, particularly those with fiduciary obligations. Government-backed mechanisms to guarantee against risk could unleash a flood of private capital. We will be looking for progress on such structures at COP27.
COP27 may be more subdued than last year’s conference in Glasgow, as participants try to make progress on climate issues despite a variety of crosswinds. Nevertheless, this year’s gathering is sure to produce key developments that continue to build on climate action required to make real progress. We will be watching carefully to gauge the ways COP27 alters the investment landscape.
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