ESG Champion Alena - her views on the outcomes of COP27

The past week saw world leaders gather in Sharm El-Sheikh. But it wasn’t in search of warmer weather. Instead, it was to discuss how much warmer we are all likely to get, and what we need to do to limit the damage. In other words, it was to attend COP27, United Nations Climate Change Conference.

COP27 comes on the heels of last year’s COP26. The 26th conference was held in Glasgow, and it resulted in the signing of the Glasgow Climate Pact – the first official agreement to reduce unabated coal usage. Glasgow conference also managed to achieve a “temperature limit”. The 2015 Paris agreement was attempting to keep the temperature rise below 2C since pre-industrial times. It has since been proven that the 2C figure is not safe, so the Glasgow pact saw countries agree on a 1.5C limit. The countries also agreed to “the ratchet”, a process of revisiting and strengthening the previously agreed goals. The Egyptian conference was the first test of their efforts and their commitments.

And it proved to be a hard test to pass. The negotiations which lasted 40 hours longer than expected resulted in a moderated deal, weakening the global commitment to reducing the levels of carbon dioxide. “The influence of the fossil fuel industry was found across the board,” said Laurence Tubiana, the person behind the 2015 Paris climate agreement, and now chief executive of the European Climate Foundation. The wording does not mention phasing out of fossil fuels, and hardly references the 1.5C target.

Geopolitical interests have once again topped the climate concerns. Major oil-producing countries like Saudi Arabia have thwarted attempts to limit emissions, aided by states like China, Russia, and Brazil. The critics are blaming the host country for allowing its regional alliances to play a deciding role.

However, it was not all doom and gloom. COP27 managed to achieve something that hasn’t been done before – the agreement on a loss and damage fund to help developing countries that have been suffering from extreme weather. The practicalities are still to be worked out – deciding on “who, how much, and how often” is not going to be easy, but it is the beginning.

There is one vital question arising from this – how are we to fund this climate pot? Our own Jeremy Hunt attempted to answer this question by targeting the low-hanging fruit – the windfall tax on significant profits posted by energy companies. However, the chancellor added a measure of confusion, extending his tax to renewables and cutting the tax relief to electric vehicles.?

So, what does this mean for sustainable investments? On one hand, we see short-term signals of wavering confidence and weakening commitments.?On the other hand, however, is a long-term understanding of the fundamental shifts within the “energy trilemma”, and the opportunities they bring.

The energy trilemma is the ever-changing balance between three pillars of the global energy system: security of supply, affordability (influenced by demand and supply), and the movement toward clean energy. Russia’s invasion of Ukraine has shaken the first two pillars, threatening supply and making energy expensive. But it has also put a lot more emphasis on cleaner energy, accelerating the longer-term transition and strengthening sustainable investments.

It would be fair to sum this up by saying that COP27 ended up being a mixed bag. Agreeing on altruistic sacrifices for the greater good is never easy. But it is necessary. The important thing is that the fight goes on, fueled by enthusiasts, idealists, and pragmatists alike.

“Fighting climate change is not just a moral good - it is fundamental to our future prosperity and security. Russia's invasion of Ukraine and contemptible manipulation of energy prices has only reinforced the importance of ending our dependence on fossil fuels.”

UK Prime Minister Rishi Sunak discussing the need to fight climate change