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COP27 Key takeaways for business

24th November, 2022

"COP27 has kept alive the goal of 1.5C. Unfortunately however, it has not delivered on a commitment by the world's major emitters to phase down fossil fuels, nor new commitments on climate mitigation. But the EU will stay the course, notably through the European Green Deal and REPowerEU, because it is essential to keep the ambition of the Paris Agreement within reach."

-EU President von der Leyen

 

The 27th UN Climate Change Conference of the Parties (COP27) , the first “African COP” was hosted in Sharm el-Sheikh, Egypt, 7-20 November 2022. The agenda focused primarily on the implementation of the Paris Agreement across 197 signatory countries to halt global warming to a maximum 1.5 degrees Celsius, and the financing, technology and other supports required to get there. Major themes included climate change mitigation, adaption, impacts on water and food security, financing a just and fair transition to net zero emissions and the emerging “loss and damage” cost already occurring. Taking place during a difficult geopolitical backdrop of a global energy crisis and looming economic downturn, the COP delivered breakthroughs on finance, but fell short on getting commitment to further reduce global emissions and providing clarity on the phase out trajectory of fossil fuels. The G20 Bali summit overlapped with consistent themes. A political positive step forward was the agreement from China and the USA, the world’s largest emitters, to work together on tackling climate change.

The headline COP27 results are detailed in the Sharm-el-Sheikh Implementation Plan[1]. The headlines are: 

  • Mitigation – While there was no backtracking on the commitment to limit global warming to 1.5 degrees Celsius, there was no progress in getting the further emissions reductions required to deliver the target. Current commitments will mean 2.5 degrees Celsius global warming so still way off target. There was limited progress to agree a phased timeline for transition out of fossil fuel use.
  • Finance – An agreement was reached to provide “loss and damage” funding for vulnerable countries being hit hard by climate disasters already.  Given climate finance commitments made since 2020 have not been delivered on, this was a significant political breakthrough and a landmark for a COP[2]. Ireland played a strong role in this with Minister Eamon Ryan leading the EU loss and damage negotiations, plus Ireland committing €25 million to supports.
  • Other actions that boost climate change adaptation, technology assistance and capacity building were also agreed. In parallel, the World Leaders Summit at the COP highlighted a range of solutions and initiatives across clean energy, food security, agriculture, forestry, finance, resources and tools to deliver climate action at scale.[3]
  • A wide range of reports to support action globally across governments, business and civil society were also launched[4].

The key takeaways for business and next steps running up to next years COP28 are outlined below. In a nutshell the messages are accelerate ambition, action, accountability and scale finance.


COP27 takeaways and next steps

 

What does success look like - Achieving net zero greenhouse gas (GHG) emissions by 2050 at the latest is essential to limiting global warming to 1.5 degrees Celsius.

Opportunity

Distance to target - As growing climate change impacts are experienced across the globe, the message that GHG emissions must fall is unambiguous. According to the latest climate science “Unless there are immediate, rapid, and large-scale reductions in GHG emissions, limiting warming to 1.5 degrees Celsius will be beyond reach.”[5]. If all of the current pledges from the 197 countries (called Nationally Determined Contributions, NDC’s) were implemented, emissions would increase by 10.6% by 2030 and would result in a 2.5 degrees Celsius warmer world by the end of the century[6].

 

Natural Capital

Mitigation action needed – According to the UN Intergovernmental Panel on Climate Change (IPCC), it is essential that GHG emissions peak before 2025 and decline 43% by 2030 to limit global warming to 1.5 degrees Celsius. The good news is that mitigation solutions exist for most sectors to close the gap. They have the potential to halve emissions from 2019 levels by 2030 and cost less than USD$100 per tonne of carbon dioxide equivalent.[7] The untapped potential of emission reductions in agriculture, land use and forestry was highlighted. For corporations action means committing to GHG emissions reductions targets to align with 1.5 degrees Celsius and verified to the Science Based Targets initiative (SBTi).

 

Circular Economy

Accelerating ambition on mitigation - Countries were put under pressure to raise their Nationally Determined Contributions, but progress was limited. Governments were requested to strengthen their 2030 targets by the end of 2023, and accelerate efforts to “phase down unabated coal power and phase out inefficient fossil fuel subsidies”. This wording was contentious as clarity on a full fossil fuel phase-out was being pushed by circa 80 countries including India – one of the four largest global emitters.

 

Global Stocktake

Global stocktake - To progress next steps, in preparation for COP28, the First Global Stocktake independently evaluating progress of the implementation of the Paris Agreement to date, will inform the further emissions reductions required.

 

Adaptation

Adaptation – COP27 made progress on agreeing how to progress a Global Goal on Adaptation and inform the first Global Stocktake. Pledges totalling USD$230million were made to the new Adaptation Fund for concrete adaption solutions to improve vulnerable countries resilience to climate change.

 

Business Action on Climate

Early Warnings for All Action Plan - Severe temperature and rainfall events have increased in frequency as a result of climate change and will continue to increase due to rising emissions. The Early Warnings for All Action Plan was unveiled at COP27. It calls for new targeted investments of USD$3.1 billion between 2023-2027 for adaptation and resilience to anticipate extreme weather events.

 

Access to Capital

Climate Finance - According to UN Climate Change Executive Secretary Simon Stiell in the COP27 close, “We have determined a way forward on a decades long conversation on funding for loss and damage” to address the impacts of climate change on communities already impacted by climate change. This was a major achievement, especially given the previous commitment in 2020 from developed countries to provide USD$100 billion per year to developing countries, has made slow progress. A compensation fund like this has long been resisted by the developed nations. The EU shifted the stakes by committing to this late in the day at COP27 and the Agreement was passed. A newly agreed “transition committee” and a range of packages, plus revamps to debt finance from the World Bank and IFC have been proposed as part of a wider financial system overhaul to realise the circa USD$ 4-6 trillion climate finance needed per annum.[8]  To deliver this, the focus for 2023 in preparation for COP28 is expected to keep the spotlight firmly on climate finance to include transformation of the financial system, structures and processes - engaging governments, central banks, commercial banks, institutional investors and other financial actors. While most of the decisions on who and how the loss and damage fund will be paid for are still to be determined in 2023, governments have agreed to explore the role of levies on large emitting sectors including international oil & gas, shipping and aviation.

 

Capital Flows

Capital flows – The Voluntary Asset Managers net-zero initiatives had several updates at COP27 to include:

  • Net Zero Asset Managers initiative (NZAM) 169 asset managers representing USD$21.8 trillion now committed to be managed in line with achieving net zero by 2050 or sooner.
  • The Net-Zero Asset Owners Alliance (NZAOA) 80 members with USD$10.9 trillion in Assets Under Management (AUM) with 44 members setting short-term (2025 and 2030) decarbonization targets representing USD$7.1 trillion – two thirds of the total AUM[9].
  • UN-convened Net-Zero Banking Alliance (NZBA) showing 60 member banks with near term 2030 decarbonisation targets[10].

 

Decarbonization

Decarbonisation – A range of initiatives were launched to support scaling the deployment of renewables and green hydrogen globally to address climate change and energy security.

 

Supply Chains and Procurement

Procurement and Supply Chain – The importance of supply chain decarbonisation (Scope 3) was underlined by the US government walking the talk with new procurement requirements for suppliers to publicly disclose GHG emissions, climate-related financial risks and set science-based emissions reduction targets.[11]

 

It is clear that now is the time to accelerate ambition, action, accountability and scale finance relating to climate change. Ireland’s Minister for the Environment, Climate and Communications, Eamon Ryan emphasised this at the conclusion of COP27 stating: 

"Urgent action is required to protect our planet and our people, from further climate-induced devastation. This means staying true to the science, delivering immediate and rapid reductions in emissions through an accelerated clean energy transition, breaking our dependence on fossil fuels as well as scaling up of climate finance, including for loss and damage in ways that meet the needs of the furthest behind first."

-Minister for the Environment, Climate and Communications, Eamon Ryan, Ireland

Source:

[1] Sharm el-Sheikh Implementation Plan. Revised draft decision -/CMA.4 | UNFCCC

[2] COP27 Reaches Breakthrough Agreement on New “Loss and Damage” Fund for Vulnerable Countries | UNFCCC

[3]  COP27 - Sharm El-Sheikh Climate Implementation Summit Declaration COP27 Presidency Summary outcomes

[4] COP27 homepage https://cop27.eg/

[5] UN IPCC, Sixth Assessment Report Working Group I – The Physical Science Basis, Presentations and Multimedia | Climate Change 2021: The Physical Science Basis (ipcc.ch)

[6] UNEP, Emissions Gap Report, 2022 Emissions Gap Report 2022 (unep.org)

[7] AR6 Climate Change 2022: Mitigation of Climate Change — IPCC

[8] Four New Reports Set Scene for Discussions on Climate Finance at COP27 | UNFCCC

[9] The second progress report of the Net-Zero Asset Owner Alliance. Advancing delivery on decarbonisation targets. – United Nations Environment – Finance Initiative (unepfi.org)

[10] Resources – United Nations Environment – Finance Initiative (unepfi.org)

[11] Biden-Harris Administration Proposes Plan to Protect Federal Supply Chain from Climate-Related Risks | The White House

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