COP27 – landmark collaboration for climate financing

Published on January 18, 2023 by Pardha Sai

UNFCCC: overview and key functions

The annual gatherings termed the United Nations Climate Change Conferences are conducted under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC). They function as the official forum for the parties to the UNFCCC to assess the effectiveness of measures to address climate change and, beginning in the mid-1990s, to negotiate the Kyoto Protocol, which places strict responsibilities on industrialised countries to reduce their greenhouse gas emissions.

Multilateral financial institutions support developing nations in their efforts to improve their climate activities; these include the Green Climate Fund and the Global Environment Facility. These financial support mechanisms are focused on key considerations, as mentioned below, with COP27-focused themes of approach falling under these agendas.

What is COP27?

The 27^th Conference of the Parties to the UNFCCC is known as COP27. The international UNFCCC agreement was effective from 21 March 1994. It was signed at the 1992 Rio Earth Summit. The convention aims to maintain greenhouse gas concentrations "at a level that would minimise dangerous human-induced interference on weather patterns. Such a threshold should indeed be accomplished within a time-frame adequate to let habitats naturally respond to changing climate, to assure the food chain is not compromised, and to enable economic progress to operate in a sustainable fashion.”

The goal of Egypt's COP27 presidency is to go from preparation and talks to implementation. Action on the ground must begin right away. We must, thus, act quickly to implement full, timely, inclusive and at-scale measures on the ground. Following up on efforts to keep temperature increases to 1.5°C, COP27 continued work on implementing the 2015 Paris Agreement's goal of keeping the global temperature increase "well below" 2°C over pre-industrial levels. It came after COP26, which was held in Glasgow in 2021 with the UK hosting.

COP – progress on ambitions after 2020

The COP meets yearly unless the parties have decided differently. The inaugural COP meeting took place in Berlin, Germany, in March 1995. The COP convenes in Bonn, the home city of the administration, except if a party offers to host the summit. The five UN-recognised regions of Asia, Central and Eastern Europe, Western Europe, Latin America and the Caribbean, and several others periodically occupy the COP presidency.

Significance of COP27 for investors and financial institutions

Investors are pledging to go net-zero, incorporating science-based net-zero goals and strategies into their portfolio decisions, by presenting Investor Climate Action Plans, encouraging businesses to reduce their emissions and create transition plans, and urging policymakers to take strong climate action.

This is being motivated by fundamental fiduciary duty to reduce our exposure to climate risk as well as by the potential benefits of moving towards a net-zero emissions economy. The US government’s recently enacted Inflation Reduction Act (IRA) would invest USD370bn towards promoting renewable energy and lowering greenhouse gas emissions, making it the nation's largest climate change investment to date.

Business executives should exert pressure to ensure the USD369bn set aside for investments in energy security and climate change is actually invested. This refers to investments with a long-term payoff of a particular return rather than investments in speculative technologies or one-time handouts with a negative ROI for previous flood or fire damage.

Companies and investors have tried to analyse the implications of the energy crisis and the war in Ukraine for the green agenda and investment prospects. The US’s IRA appears to have the potential to significantly speed up the transition to greener energy.

Many financiers and investors are concerned that early measures and frameworks would not fully use all the new data because they are having trouble keeping up with the necessary development. For instance, it is now recognised that financing is required to fund emission reduction, as opposed to simply having top-down nominal targets for reducing financed emissions.

Significance of COP27 for industries and business entities

The COP27 meeting this year was extensively positioned as a chance to stop bargaining and concentrate on "planning and implementing" to ensure the promises and commitments made would become a reality as soon as possible. The decisions and contracts ratified in Egypt will be translated into national goals, rules and policies.

This would immediately impact SMEs since it forces the suppliers of these larger firms to establish their own net-zero pledges. Because the decisions and agreements made in Egypt will translate into national goals, rules, regulations and policies, COP27 is important to businesses across the globe as part of compliance requirements.

Businesses are working hard to baseline their emissions, map out transition pathways and rethink their business models. Assertive involvement is also becoming more prevalent, as evidenced by the three-year deadlines established for investees to join the science-based targets (SBT) effort. The closest thing we have to a global sustainable finance dashboard amid all this activity is COP27.

The first Just Transition Energy Partnerships (JETPs) were established during COP27, and it was also decided to fund loss and damage to disadvantaged nations. The global gathering, however, drew criticism for the lack of progress made at the national level to keep global warming to 1.5°C by 2050 and to consider this as a limit rather than a target. Initiatives from the private sector called for increased government action on climate change, including active business involvement.

COP27 demonstrated the critical role businesses must play in delivering and driving climate action throughout their operations and industries. The boards' active role in directing executive teams and managing their businesses during the transition to net zero will be essential to maintaining the global economy.

Key viewpoints on agendas, alliances and keynote speaker comments across themes at COP27

 

1. Mitigation

The goal of Egypt's COP27 was to make the case that global warming should be kept "far below" 2°C and that nations should "work hard" to maintain the 1.5°C target. It was mentioned that "strong and immediate actions" were required. The Glasgow Climate Pact required assessing ambition in nationally determined contributions (NDCs) and developing a work programme for the ambition of mitigation action.

2. Adaptation

COP27 aims to make urgently required progress on the world's adaptation objective. The Paris Agreement and the Glasgow Climate Pact's emphasis on placing adaptation at the centre of global action should be confirmed by an expanded global agenda for adaptation-related activities.

3. Finance

Egypt has made it vital that COP27 achieves considerable progress on the crucial topic of climate finance while moving forward on all finance-related matters on the agenda. It is centred on the baseline – the need for better transparency in the flow of money – and has facilitated access to address the needs of developing countries, specifically Africa, least-developed countries and small island developing states.

4. Collaboration

Egypt has made note of the consensus-based nature of UN negotiations and the need for inclusive and active engagement of all parties to establish agreements. Accordingly, it stated that it was striving to secure the attendance of all pertinent parties to COP27, especially delegates from nations in Africa and vulnerable populations that are affected the most by climate change.

Delegates and watchers had a rare opportunity to join COP27 to talk on a subject that concerns all humankind. Even though the meeting was conducted amid a global "polycrisis", intervention on climate change and collaboration are likely provide realistic solutions for problems with food, power, the environment and security. Key actions taken on the themes mentioned above at COP27 include the following:

• The first high-level ministerial discussion was conducted on 15 November 2022 to "define the global direction on mitigation ambition and execution before 2030"; the roundtable is a new annual event. Participants called for an urgent increase in overall ambition. Many developing nations emphasised the requirement for assistance and consistent cash inflows.

• For the UNFCCC technology mechanism, a collaborative work programme has begun. The COP established the technology mechanism in 2010 to promote the transfer of technology to underdeveloped nations. It is made up of two organisations: the Technology Executive Committee (TEC) and the Climate Technology Centre and Network (CTCN).

• The introduction of the Forest and Climate Leaders' Partnership (FCLP) resulted in a statement on forestry and land use. The FCLP seeks to encourage action to fulfil the pledge to stop land degradation and forest loss by 2030. 27 nations, or countries accounting for more than 60% of the world's GDP and 33% of its forests, have joined the alliance.

• The UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities has released a comprehensive list of recommendations to assist businesses in setting and achieving net-zero commitments while avoiding being duped by greenwash.

• The Loss and Damage Fund was launched, the first fund supported by developed nations and focused on committing emergency financial aid-based climate support. This was established through the continued efforts of G77 and developing nations in the past 30 years.

Wider gap of implementation noticed at COP27 and the path to COP28

The “Implementation COP", promised by Egypt’s presidency, saw a transition from previous commitments to balanced action on combating climate change and preparing for its impacts. The outcome was mixed, focusing more on the effects of climate change than its causes.

However, a decision that did nothing to further attempts to maintain temperature below 1.5°C (beyond what was agreed at COP26 in Glasgow last year) drew significant criticism from the EU and its allies. All of this was against the backdrop of global food, oil and debt problems, and allegations against the Egyptian government of human rights violations.

Despite India’s proposal that all fossil fuels should be phased out, the COP27 accord failed to go beyond the Glasgow Climate Pact's vow to "phase down unabated coal power". No new goals or promises were made in the document, endangering the Paris Agreement's ambition to keep global temperature increases to 1.5°C.

The negotiations at COP27 were impacted significantly by these issues. In the final version, language advocating the phase-out of fossil fuels was removed, and new language encouraging the rapid development of "low-emission" energy systems was added. Many are concerned that this language will be used to support more production of natural gas. The success of the loss-and-damage discussions could be hampered by the failure to limit interest in fossil fuels.

The COP27 and COP28 discussions are expected to result in a move towards implementation and solutions. They must also commit to broad support and include all needs and geographies if they are to succeed. Sharing solutions with emerging nations is crucial for building an equal and robust future for everyone,

The accomplishment of these goals is of great interest. The government of the United Arab Emirates (UAE) has launched the Net Zero by 2050 Strategic Initiative, the first in the Middle East; this pledges to achieve carbon neutrality globally by 2050 and acknowledges the role emerging and developing economies play in the solution. Over 70 nations on six continents have received USD17bn in investments from the UAE for renewable energy initiatives.

The Middle East is a region of striking differences. It is home to both the privileged and impoverished, industrialised and emerging nations, and abundant and scarce energy sources. A lack of freshwater, constant construction and reliance on air conditioning contribute to a large carbon footprint.

Although the nations may have an abundance of oil, they face energy-related challenges daily. It is hoped that the transition to clean renewable energy and robust water infrastructure would finally take a step forward at COP28 in the UAE. However, the issues are complicated, making implementation difficult. As cash would need to be put on the table for adaptation, loss and damages, and renewables would need to be ramped up swiftly, this concept would need to be at the centre of the COP28 negotiations.

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Sources:

• S&P Global Inflation Reduction Act Insights: 2022

• Inflation Reduction Act Guidebook, The Whitehouse: Federal Government of USA, 2022

• COP27: Delivering for people and the planet, United Nations, 2022

• UNFCCC COP27, SDG Knowledge Hub, International Institute of Sustainable Development, 2022

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