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COP 27 review: progress amidst the setbacks

Matt Christensen, November 2022

COP 27 review: progress amidst the setbacks November 2022 The close of COP 27 (the UN Climate Change Conference) seems coloured by frustration at an apparent lack of positive outcomes. Yet looking past the negative headlines reveals some progress and reasons to be optimistic. However, genuine net-positive progress will require greater collaborative action from stakeholders. The concept of a “just transition” in tackling Matt Christensen climate change was high on the agenda Key takeaways Global Head at COP 27 leading to an agreement for a Sustainable and – High profile ideological strategic Impact Investing “loss and damage fund”1 to be established setbacks distracted from many for vulnerable countries. This was a major notable positive implementation highlight of the conference, however the achievements details of the agreement have yet to be fully – Many may struggle to see a net defined, but it certainly marked a positive benefit from COP 27, but the scale step and formal recognition of the need to of progress in areas like renewable align the financial burden with those countries energy highlights the significant which have both the financial means and the scope to accelerate progress if we footprint. Another welcome announcement reduce headwinds was Indonesia joining the Just Energy Transition Partnership2, which coincided with – We expect a greater focus on South Africa reporting its first-year progress biodiversity and “just transition” in update having adopted the approach at last 2023. year’s conference. While we welcome these positive outcomes, it Additional renewable energy capacity reached is important to note that the loss and damage record levels last year and there remains very fund is a function of the future trajectory of climate mitigation and adaptation, where strong momentum towards renewables as some elements appear to have stalled. This we approach 2023. Yet, this has been offset is where gross versus net progress kicks in. by the resurgence of fossil fuel demand and 1. 2. international-cooperation-on-energy-and-climate. Value. Shared.

COP 27 review: Look through political glare to the progress in the shadows infrastructure expansions resulting from the current energy crisis. Any progress to return to a sustained reduction in fossil fuel use will be particularly beneficial, becoming better understood. We expect biodiversity to given the scaling up of renewables. be a major theme for financial institutions in 2023, and 7 With regards to climate finance, collectively we need hope that the three thematic days at COP 27 will be a to dig deeper momentum springboard for the UN COP 15 Biodiversity Conference the different sector-specific in Montreal. COP 27 saw a formal acknowledgement of alliances under the Glasgow Financial Alliance for Net the climate and biodiversity crises being interlinked, with Zero3 . Furthermore, launch of the International particular focus on how agri-food systems can be part of Sustainability Standards Board’s climate-related the solution to both the climate crisis and safeguarding disclosure standards at COP 27 – with a focus on food security. We have high expectations for this implementation next year – complements initiatives like conference where governments will convene to agree mandatory disclosures in the UK in line with the Task Force on a Global Biodiversity Framework for the coming on Climate-Related Financial Disclosures. As investors decade. grapple with Paris-aligned investing, the UK Transition Plan Taskforce4has developed the Climate Transition Plan In summary, there is much progress being achieved concept extending beyond commitments and on very specific climate action tracks, but there still decarbonisation to a fully aligned approach. Despite appears to be a handbrake on a necessary acceleration these advances, key takeaways from the conference in progressing climate goals. The handbrake is primarily absence of “interoperable, decision-useful and the increasing politicisation of key topics touching implementable”5global standards and globally co- national interests including fossil fuels and the funding of ordinated policies. climate transition. The G20 Summit, held in parallel with The total amount of global climate finance (public and COP 27, sought to reinforce declarations on achieving private, domestic and international) would need to the 1.5°C target; the phasing out of coal; increase more than eight-fold to reach the near-term and the acceleration of climate finance, yet divisions 6 target of USD 5.2 trillion per year by 2030 . were evident. Our hope is that the aggregated scale of individual transition achievements this year can help create a credible, scalable and economic case for each of these targets. 3. Over 550 member firms responsible for around USD 150 trillion of investment assets. 4. Transition Plan Taskforce – 5. Excerpt from open letters of top CEOs ( “With the current divergence of standards underway, we call on the International Sustainability Standards Board (ISSB), the European Commission, the U.S. Securities and Exchange Commission (SEC) and all other regulating bodies to align their collective efforts to arrive at globally aligned standards to accurately measure and compare progress against ambitious targets. The standards must be interoperable, decision-useful and implementable to ensure they create trust and lasting change. Finally, market-based instruments (including carbon markets, power purchase agreements, etc.) have an essential role to play in reducing carbon emissions globally but need greater alignment and clear standards and frameworks”. 6. Source: The State of Climate Action 2022. 7. Adaptation and Agriculture; Water; and Biodiversity. 2

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