COP27: A chance to overcome the shortcomings of Glasgow?

While COP26 in Glasgow galvanised global ambitions surrounding climate change, the period since has seen headwinds stifle momentum as the shortcomings of the event came to the fore. With attention turning to Sharm El-Sheikh and COP27, overcoming the inadequacies of the Glasgow event amid a challenging economic environment is set to be central to discussions.

There is an inherent risk that COP27, taking place from 6 to 18 November, may be a reflection of the failures of COP26, says Dominic Tighe, sustainability analyst at Lombard Odier Investment Managers. He says the failure of wealthy countries to channel sufficient climate funding to less wealthy nations “hung over” last year’s event, necessitating COP27 organisers to put “adaptation and the just transition” centre stage.

“This pathway must enable poorer countries to leap-frog the fossil-fuel dominated industrial phase that today’s rich countries had to pass through, whilst also enabling them to cope with the inevitable warming impacts that have already been baked in,” he says.

Events and negotiations in the Egyptian resort town may also give rise to a better representation of marginalised nations from the African continent.

Cementing a just transition

Discussions will seek to understand what sort of cooperation is needed to make sure every nation and region can deliver a just transition according to its own needs and conditions, and what potential financing frameworks may have to be put in place.

“This means funding must be made available to rapidly scale up technologies such as solar, wind and battery storage across the developing world in the next decade. However, it also means providing resources for projects such as flood defences, and resilient agriculture,” Tighe says.

But the same circumstances were apparent ahead of COP26 too. At 2009’s COP15 in Copenhagen, $100bn was promised per year by 2020 from rich nations to less wealthy countries to help them adapt to climate change.

But that target has been missed every year since 2013, with the OECD predicting the figure will be met by 2023 at the earliest. Of the finance provided, a 2020 report from Oxfam found that in 2017/18, approximately 40% of the $59.5bn in funding came through non-concessional finance, meaning the loans offered to developing countries do not have a rate low enough to quality as Official Development Assistance (ODA). In short, the practice ties developing nations into loans with above-market interest rates.

Resetting the agenda

Over the past year, reports from the Intergovernmental Panel on Climate Change (IPCC) have steered the discourse, with ‘code red for humanity’ set to be a consistent theme at COP27.

On the back of that, there is an expectation that discussions at the event will transition from “do we move?” to “how fast do we move?”, Tighe says.

“The additional question of ‘how do we pay to mitigate climate change’ is inevitably a key focus of COP negotiations,” he adds.

Meanwhile, other headline-shapers have come under increased scrutiny. Members of the Mark Carney-headed Glasgow Financial Alliance for Net Zero (GFANZ) have been accused of exploiting loopholes and greenwashing, while some members have backed out, citing data reporting challenges. As such, the expectations of such alliances are dampened heading into COP27.

Failures of such groups must be expected, says Meredith Sumpter, CEO of the Council for Inclusive Capitalism. She says that coalitions such as GFANZ are needed to encourage the private sector to take action, but shortcomings will be inevitable.

“Not everyone will make their targets, though it is imperative that investors and companies press ahead in whatever way they can. It is just as imperative that private sector actors be transparent in their progress,” she says.

Disclosure discourse

One of the centrepiece results of COP26 was the formation of the International Sustainability Standards Board (ISSB) – a group tasked with creating the global baseline for sustainability disclosures. With frameworks being developed, the standards produced by the ISSB are “likely” to accelerate climate action, says Tighe.

“By setting out a mandatory standard that can then be applied across countries, the ISSB will enable policymakers and investors to ‘fill in the gaps’ and make high-confidence judgments about the relative performance of different companies.

“This supports the development of policy incentives for governments, and for investors, focused investment strategies and engagements,” he says.

But while the work of the ISSB is vital for creating the right conditions for investors and companies to invest sustainably with confidence, some are calling for more drastic action ahead of COP27.

“Without legislating for systemic change, individual choices to change behaviours will make a very limited difference,” according to Chris Bennett, managing director at sustainability consultancy Evora Capital.

He says the work of the ISSB “will make certain aspects of company climate risk more transparent, but only where it is a material financial risk to investors, and it is not comprehensive sustainability reporting”.

Beyond developments that build upon the accomplishments of prior COP events, expectations are limited.

“We’ve come to expect big announcements from the COP following the success of COP21 in Paris in 2015,” Bennett says.

“However, that was a rare event and what is more common is a slow reveal of the progress of political negotiations taking place throughout the year at a series of UNFCCC [UN Framework Convention on Climate Change] meetings.”