What can we take away from COP27?

By Steve Varley , EY Global Vice Chair, Sustainability, and Dr Matthew Bell , EY Global Climate Change and Sustainability Leader.

Progress on the sidelines of COP27’s negotiations tells us much about the key issues for implementation on the road to COP28 and beyond.?

Against a backdrop of an energy security crisis, extreme weather events and geopolitical instability, the Egyptian host’s aspirations for “implementation agenda” were high.

UN Secretary General António?Guterres' stark warning that the world is on a “highway to hell with its foot on the accelerator” reinforced hard-hitting reports on finance gaps, health impacts and analysis showing no credible pathway to achieve the 1.5C limit to global warming.

For developing nations, the landmark breakthrough on Loss and Damage is an issue of trust and a critical bridge that needed to be built to deliver on the Paris Agreement’s wider ambition of limiting global warming to 1.5C. Despite big decisions not being expected at COP27, there was still little new progress on emissions reduction and fossil fuels, and an uneasy expansion of wording to include “low emissions fuels” that left many concerned for the implications of gas investment in the short term.

It puts more pressure on the global stocktake in 2023, and the COP28 conference’s ability to reinforce and progress ambition and delivery.

5 themes will shape the year ahead:

1. ?Pressure is growing on Multilateral Development Bank (MDB) Reform

With a strong African country focus to proceedings, the structural issues with finance and accessing capital for LDCs took a high profile. The central issue is risk: who can and will take it. Green loans and blended finance gets green and clean tech projects off the ground, de-risking the project through early-stage financing, or taking on currency risks, enabling private sector capital to be deployed where their own risk profile could not have absorbed it wholesale.

Commercially viable adaptation projects not only strengthen country level resilience, they support wider development, skills and jobs. During COP, the IMF identified $100b worth of private investment opportunities by 2040 supporting adaptation in 43 countries in Africa, and the UN identified 128 climate projects to connect them to potential finance partners.?

What’s at stake is rethinking established financing models and charters governing MDBs. It’s not easy, and it won’t be quick, but US Climate Envoy John Kerry called for a plan by April to unleash hundreds of billions to help countries combat climate change, which in turn could leverage trillions in capital from the private sector.

2. Public procurement ripples are growing

The US government’s proposal to raise the bar for major suppliers’ disclosure of greenhouse gas emissions, climate-related financial risks and the setting of science-based emissions reduction targets will create a ripple effect over time on companies in the supply chain ecosystem in the US and beyond.

Will other governments follow suit? It’s a smart move, similar to the Net Zero targets announced by the UK government in 2021, that engages the private sector in integrated emissions reduction targets by 2030. And with public spending under pressure post COVID, and concern about governments’ focus on climate action in the context of wider economic instability, it’s a move that costs governments nothing up front, particularly as deadlines loom for updated Nationally Determined Contributions in late 2023.

On the sidelines of COP and G20, energy security and transition remain the defining climate change policy challenges. The new deals with Indonesia and Vietnam under the Just Energy Transition Partnership model were encouraging, to bridge public private investment and incentivize emerging economies to leave fossil fuels in the ground in a switch to cleaner energy.??

3. Business is closing an ambition and action gap

On the sidelines, COP has evolved as a convening platform for public-private collaboration and action, with new supply chain collaborations, heavy industry decarbonisation commitments and expansion of the Breakthrough Agenda, First Movers coalition and Finance sector initiatives encompassing $32t assets under management. Despite the disappointment of COP27’s deal on emissions reduction, what’s clear from leading businesses engaging in climate action, is that they are not waiting for COP to take action.

Businesses’ role at COP has its critics, but leading players, particularly those investing in supply chain, manufacturing, product and energy innovation, are helping to close the gap between what countries can do and what the climate science says needs to be done.

For example, the Science Based Targets initiative reports that of over 4,000 companies taking climate action, almost half (1,957) have science based targets. The UN’s Global Climate Action portal reported a 90% increase in use by business, with over 13,000 private sector organizations registering climate action. Internal carbon pricing is driving climate-informed decision making and planning.

Pragmatically, this isn’t all altruism, but a wider shift to Net Zero economics, a new lens for competitive and investment strategy that addresses current and inevitable policy change and embeds hard learned lessons on supply chain and operational resiliency during COVID and extreme weather events.

Leading businesses know that climate action is a business transformation strategy. To be clear, across public and private sectors, we need to go further and faster – because every fraction of a degree matters in terms of potential impacts on lives and livelihoods.

4. Nature’s influence in climate action grows

For the first time, food systems and agriculture - the sleeping giant of the climate adaptation and mitigation agenda - featured on the agenda. The Sharm El Sheik Adaptation Agenda, encompassing a range of 2030 target outcomes including climate smart agriculture, creates an important platform for action and investment, while the Breakthrough Agenda for Agriculture is a significant implementation win, with 13 countries endorsing a move to climate-resilient, smart agriculture by 2030.

These developments, amongst others on water, deforestation and food, provide a pragmatic focus at regional and country level for investment and innovation linked to the COP15 agenda, the biodiversity equivalent of the UNFCCC COP27 process, taking place in December.

It will also mean that companies need to begin more rigorous explorations of their impact – positive and negative - on nature and biodiversity. ?

5. A focus on progress means anyone is a target for greenwashing ?

Trust is not only an issue for vulnerable nations at COP. While greenwashing of public and private sector commitments stole headlines, green-wishing and green-hushing are becoming more potent. Green-wishing sees organizations align to an agenda like net zero, and allude to progress when there isn’t any, or effective plans to deliver it. The flip side is green-hushing, where following announcements, there is little visibility of what companies are doing.

Ultimately, the perception of an organization's progress will be defined by the public and other stakeholders, and without a coherent standard for judging plans and progress, any company can be accused of greenwashing.?

In that context, progress on the integration of standards was welcomed. Highlights included the integration of CDP and SBTi into the US Federal government procurement reporting proposal, the launch of a new ISO standards for Net Zero Guidelines and CDP’s integration of the International Sustainability Standard Board’s IFRS S2 climate disclosure standard by 2024, reducing the reporting burden on companies.

The road to COP28

Despite the apparent glacial speed of progress, COP remains an important level playing field, moderating complex issues, providing a climate change ‘North Star’ around which business and policy makers convene.

It needs to echo in negotiators' ears that the 1.5C aspiration of Paris 2015 was defined as a “limit not a target” by We Mean Business. COP27 is a work in progress. The report card will urge that governments and business “must try harder” on the road to COP28, with no room for compromise.

The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.

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