The 2022 United Nations Climate Change Conference, known as COP27, kicked off on November 6. Over the next two weeks, the flagship summit will set the climate agenda for governments and businesses alike, and has the potential to produce meaningful agreements on the critical issues of climate finance and the paying of compensation by rich nations to developing countries for climate-related disasters.
What is COP27?
The 198 signatories to the United Nations Framework Convention on Climate Change (UNFCCC) gather each year to discuss global heating and humanity’s response at what is referred to as the Conference of the Parties (COP). The summits bring together the largest number of climate policymakers each year, as well as business and finance leaders that support the UNFCCC’s aims.
COP27 is the 27th summit, and is taking place in Sharm El Sheikh, Egypt. It’s being branded as the “implementation COP”, reflecting the hope of conference organizers that it leads to actions that fulfill the 2015 Paris Agreement — the landmark treaty which aims to limit global warming to well below 2°C and preferably to 1.5°C compared to pre-industrial levels.
In his opening address to the conference on November 6, UN Climate Change Executive Secretary Simon Stiell laid out “three critical lines of action” for COP27:
- Demonstrating the “transformational shift to implementation” by turning prior climate negotiations into decisive actions.
- Making progress on the following “critical workstreams”: mitigation, adaptation, finance, and loss and damage (L&D). The latter refers to funding to compensate communities affected by climate change impacts that either cannot be adapted to or that require resources unavailable to the victims.
- Enhancing the “delivery of the principles of transparency and accountability” as relates to parties’ climate commitments and plans.
Stiell summed up the overarching mission of this COP as follows: “Our policies, our businesses, our infrastructure, our actions — be they personal or public — must be aligned with the Paris Agreement and with the Convention. The heart of implementation is everybody, everywhere in the world every single day doing everything they possibly can to address the climate crisis.”
How could COP27 impact businesses?
The decisions made at COP27 have the potential to accelerate countries’ climate policies and shake up international and national climate priorities. Such developments will trickle down to affect governments, civil society, and the private sector.
Here’s how decisions related to the “critical lines of action” for COP27 could affect businesses:
1. The shift to implementation
COP27 aims to close the gap between parties’ climate promises and the actions required to achieve them. This is particularly true of their emissions reduction plans, which are described in what are called Nationally Determined Contributions (NDCs).
At the last UN Climate Change Conference, CO26 in Glasgow, the parties agreed to a new “work programme” on emissions cuts with a mandate to encourage countries to set stronger targets and implement new and existing goals. The parameters of this work programme are set to be finalized at COP27.
The output of this work programme could affect the contents of countries’ next round of NDCs, which each signatory revises and updates every five years. Businesses operating in countries that elect to strengthen their targets may have to overhaul their own climate strategies and change the pace and scale of their own decarbonization plans.
Climate adaptation is also part of the implementation agenda. Certain countries want to increase the amount of climate finance spent on building resilience to physical climate risks, and to specify what the global goals on adaptation should be. Decisions made on this front could lead to new public-private partnership opportunities on infrastructure development and climate-safe construction.
2. Climate finance and loss and damage
Climate finance has been a hot topic at previous COPs, and the summit in Sharm El Sheikh will be no exception. Under the 2015 Paris Agreement, rich nations pledged to deliver at least USD$100bn of climate finance annually to developing countries from 2020 through to 2025. This commitment is seen as critical to ensuring poorer countries make the low-carbon transition and build up climate resilience.
However, rich countries have repeatedly failed to meet this target. In 2020, total climate finance delivered came to USD$83bn, of which USD$60bn came in the form of aid and contributions from countries and development banks, and USD$23bn came from climate funds and private capital providers. The US — the world’s largest historic emitter of greenhouse gas emissions — has delivered just USD$7.6bn out of the projected USD$40bn it should provide given the scale of its climate pollution.
Poorer countries with limited resources are adamant that rich nations pay to help them green their economies. However, rich country governments want to balance public commitments with private sector pledges in order to shift the spending burden away from taxpayers and to get around political roadblocks. This dynamic may lead to the creation of alternative financing mechanisms that co-opt businesses, and the financial sector in particular. New models of financing could bring companies a wealth of climate investment opportunities.
L&D is a separate category of climate finance focused on delivering relief to countries on the frontlines of the climate crisis — like small island nations contending with sea-level rise and more destructive tropical storms. Countries dealing with the worst impacts of climate change are overwhelmingly those that have produced only a tiny fraction of historic emissions, and they want the biggest emitters to pay for the damage their pollution has caused. However, rich nations have resisted this narrative out of fear they could be subject to billions of dollars in liabilities.
In his opening statement, Stiell said “we need to enable enhanced finance to flow to addressing [L&D] impacts.” It’s therefore possible that COP27 gives birth to new financing structures that bring together public sector resources and private sector know-how to address L&D. Again, this could usher in new climate opportunities for businesses, and perhaps open new avenues for innovation in loss prevention, insurance, and climate risk analytics.
3. Transparency and accountability
COP27 could transform how governments and non-state actors account for and disclose their progress toward climate goals. The impetus for transparency and accountability has suffused the business world in recent months as more and more companies have released climate goals. While these pledges have been welcomed by climate policymakers and activists, often businesses do not provide enough information on how they will be achieved.
COP27 comes amid the first Global Stocktake (GST), a process for monitoring the world’s collective progress on mitigation, adaptation, and means of implementation and support. This effort depends on the supply of high-quality, reliable data from businesses, which contribute a hefty chunk of global emissions. COP27 will host one of three “technical dialogues” on the GST, a discussion among parties, experts, and non-state actors intended to give rise to a common understanding of climate progress.
This dialogue, and the GST process writ large, may help establish new standards for the calculation and reporting of emissions targets and bring about new norms on what counts as a credible climate transition plan.
What would make COP27 a success
At COP27, parties have the power to translate the 2015 Paris Agreement into actions and processes that put the world on course for well below 2°C of warming. In Manifest Climate’s view, this will require the following, in no particular order:
- Parties must support a robust work programme on emissions cuts and agree to increase their climate mitigation ambitions. These must then be codified in updated NDCs.
- Developed country parties must ramp up their climate spending so the developing world can execute on their low-carbon transition plans and build up their defenses against climate physical risks.
- Parties must come to an equitable agreement on L&D so that countries hit by climate disasters are able to rebuild and improve their resilience.
- The COP27 technical dialogue on the GST must produce a roadmap for making climate progress more transparent and stakeholders more accountable. It must also properly incorporate the perspectives of businesses and non-governmental organizations that are active in climate data collection and reporting.
Manifest Climate’s Role
Manifest Climate has boots on the ground at COP27 and will take stock of key developments during the summit. Our focus will be on translating the impact of COP27 negotiations and developments for businesses and our clients. If you have any specific, business-related questions or topics, please reach out to our team.