No new commitments, but rather a focus on the implementation of previous commitments is what investors expect to set the tone at COP27, the United Nations’ annual climate change conference that started in Egypt on Sunday.
Schroders, an independent investment management firm, its investment experts for their views on the conference, why it matters for investors and what they think will be the main issues under discussion.
Irene Lauro, environmental economist at Schroders, says COP27 has been framed as an implementation summit and, therefore, conversations are unlikely to focus on new mitigation measures to reduce emissions, but rather on how to implement climate actions in order to fully put the Paris Agreement in operation.
The Paris Agreement is a legally binding international treaty, agreed to at COP21 in Paris in 2015, with the goal to limit global warming to well below 2˚C, preferably to 1.5˚C, compared to pre-industrial levels.
“Discussions at COP27 will have a focus on how decisions and pledges that countries made at COP26 in Glasgow can be implemented. Therefore, stricter regulation is not a likely outcome.”
However, even if new commitments may be thin on the ground, there is plenty to discuss.
“Unlike previous COPs, which focused heavily on climate mitigation, a key priority of the COP27 Presidency is to ramp up global efforts on adaptation and resilience and place this at the forefront of the climate action agenda,” Yumna Yusuf, engagement associate at the firm says.
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Africa most affected
This time the COP is held in Africa and the agenda was shaped around the continent.
“Africa is one of the continents most affected by a warmer world and ‘adaptation’, how to prepare for the impact of global warming and more extreme weather events, is a top item on the COP27 agenda,” Lauro says.
However, the events of the year also pushed adaptation up the agenda. In 2022, Europe experienced its hottest summer in 500 years, Pakistan declared a state of emergency after two thirds of the country was flooded and Cuba and the Philippines were hit by typhoons and hurricanes simultaneously.
Therefore, Saida Eggerstedt, head of sustainable credit, says with 2022 showing record temperatures, as well as floods and droughts, she hopes there is a lot more focus on climate change adaptation across industries and countries.
“We will be there for three days with the Luxembourg Ministry of Finance delegation. The days we are there will be ones where there are a number of activities around climate adaptation,” Maria Teresa Zappia, head of sustainability and impact at Schroders Capital says. She is attending part of COP27 in person.
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The ‘Just Transition’
Considering the wider impact of reducing harmful emissions is also important.
“The extreme energy insecurity felt this year related to fossil fuel supply used as a weapon, among others, not only reduces growth potential globally, but many jobs might be lost as a result,” Eggerstedt says.
“I hope the generation of renewable energy as a percentage of total energy generation, as well as energy consumption reduction and efficiency, are widely discussed and implemented with medium term actions and not long-term goals.”
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Will COP27 be successful?
While some of the Schroders experts are sceptical of the COP’s ability to deliver the policies required to limit global warming as per the Paris Agreement, global equities portfolio manager Simon Webber says after 26 COPs the world achieved very little in the way of the actual emission reductions necessary to avoid dangerous climate change.
“Furthermore, this is a time of heightening geographical tensions between major economic players and that makes it hard to see negotiators having the political will required to make the necessary difficult decisions and compromises.”
Andy Howard, global head of sustainable investment, agrees and says in practice, he does not expect big things from COP27.
“It seems very improbable that major steps forward or statements of intent will be announced in the current political context.”
The fact that COP26 in 2021 was such a large event because no COP was held in 2020 due to the Covid-19 pandemic, could have contributed to this.
“I have a feeling there will not be as many people as there were in Glasgow last year. The government delegations will be more junior, there will be fewer presidents,” Zappia says.
“I think the last one was very particular because it was the first after Covid and a lot of people travelled to get together. This one is almost so close timewise that people may say to themselves they did not deliver what they were supposed to do between COP26 and COP27 so they might as well not to go and be embarrassed.”