The 27th United Nations Climate Change Conference, more commonly known as COP27, will kick off on November 6 in Sharm El Sheikh, Egypt. Almost 200 countries will come together and try to negotiate a coordinated response to our changing climate The conference will also be attended by industry and other global stakeholders who have previously used the event to launch climate-related initiatives.
The results of COP26
COP26 ended with 196 countries agreeing to “review and strengthen” their 2030 targets by the end of 2022 to align with the Paris Agreement. This was a diplomatic impasse in which everyone agreed that something needed to be done, but very few agreed on a definitive course of action. As COP26 President Alok Sharma noted at the time, adequate progress was made at the 2021 conference to keep the goal of limiting global warming to 1.5c “alive”, but its “pulse is weak”. In other words, resuscitation was postponed to COP27.1
Progress made included industry announcements such as the creation of the International Sustainability Standards Board by the International Financial Reporting Standards (IFRS) Foundation.two, and sweeping agreements to phase out coal unabated, phase out fossil fuel subsidies, meet national climate goals, and provide financing to developing nations. It is this last issue that seems to be the sticking point ahead of COP27.
The scenario of the annual meeting is prognostic. While the physical impacts of climate change are felt globally, the responsibility for causing anthropogenic global warming may fall on the Global North, that is, on the world’s most prosperous countries. Historically, the Global North has produced about half of all greenhouse gas (GHG) emissions since the industrial revolution.3 Today, the lifestyles of developed nations produce a carbon footprint 100 times greater than that of the world’s poorest nations combined (the Global South).4 In other words, the Global South has not only contributed fewer emissions to global warming, but the impacts are compounded by its poor economies and structural inefficiencies, which make rebuilding difficult.5 In the run up to COP27, there has been a focus on loss and damage-that is, the concept that industrialized countries should pay developing nations for the negative impacts of climate change.6 So far, the US and the European Union (EU) have cautiously agreed to discuss the issue.
The year since COP26 has been marked by worsening climate disasters alongside economic and political turmoil. The Russian invasion of Ukraine resulted in a humanitarian and energy crisis; the latter led key countries to withdraw from gradual reduction on fossil fuels (ie Germany). Looming fears of a global recession, rising inflation and rising prices are also distracting governments from setting meaningful climate policy.
As a result of the turmoil, national commitments set out at COP27 are expected to be lackluster and industry response slow compared to previous years. However, the global climate challenge and devastating catastrophes will continue to put pressure on governments and industries for a concerted response.
Perspectives before COP27
While governments have focused on these political crises, natural disasters have devastated ecosystems and caused widespread economic damage. The floods in Pakistan left a third of the country under water and displaced nearly 8 million people.7 The economic cost is expected to be in the billions (USD) and payback times extend years into the future.8 Meanwhile, in the US, Hurricane Ian has destabilized Florida’s real estate and insurance markets for years to come, costing more than $75 billion in physical damage.9
At COP27, governments will need to look beyond the backdrop of global unrest and work together to take climate action. There are many areas for decision-makers to discuss, but for us, three key challenges stand out as vital to keeping the pulse of climate action steady:
- Address loss and damage: A key stumbling block before COP27. Developed nations argue that existing mechanisms to finance the severe impacts of climate change on developing communities are better positioned to provide support than establishing a new fund. However, the China-led Group of 77 (representing most developing nations) has insisted that loss and damage financing measures be high on the agenda.10
- review and strengthen: The COP26 signature deal to be determined whereby countries agreed to “review and strengthen” their 2030 GHG emission reduction targets. In light of global turmoil, predictions are high that COP27 will also end with Many to be determined statements, so far only 23 countrieseleven have updated their Nationally Determined Contributions (NDCs) to reduce global emissions. We believe that to make sufficient progress, countries must stop the dangerous trend of falling short of climate commitments and strengthen climate policies and investments.
- ACT about existing promises: During recent COP meetings, a host of commitments have been announced covering everything from methane emissions to deforestation, increased funding and scaled-up local climate adaptation efforts.12 In our opinion, countries should stop making campaign promises and act decisively on these promises, as they represent important solutions to climate change problems beyond reducing our global GHG emissions.
Next – Looking to 2023 and beyond
The challenges facing COP members this year are numerous. The impacts of climate change will continue to cause real and pressing problems. We believe that progress is needed to address the increasingly unprecedented climate disasters occurring around the world.
Let’s be clear: everyone has a role to play, from countries to investors. And while industry plays an important role in shifting society towards a low-carbon economy, we see responsibility first and foremost as a policy issue that must be addressed by a globally agreed response led by government action. .
While much remains to be clarified, Russell Investments continues to assess climate risks (both physical and transitional) as we integrate ESG issues into our investment process.
eleven 6 key tasks at COP27.
These views are subject to change at any time based on market or other conditions and are current as of the date shown at the top of the page. The information, analysis and opinions expressed in this document are for general information only and are not intended to provide specific advice or recommendations for any person or entity.
This material is not an offer, solicitation or recommendation to buy any security.
The forecast represents predictions of market prices and/or volume patterns using variable analytical data. It is not representative of a stock market projection, nor of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, or an opinion as to the suitability of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Remember that all investments carry some level of risk, including the potential loss of principal invested. They generally do not grow at a uniform rate of return and may experience negative growth. As with any type of portfolio structure, trying to reduce risk and increase return could, at times, unintentionally reduce returns.
The information, analysis and opinions expressed in this document are for general information only and are not intended to provide specific advice or recommendations for any individual entity.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights in and to the Russell trademarks, which may be used by members of the Russell Investments group of companies under license from Frank Russell Company. Members of the Russell Investments group of companies are in no way affiliated with the Frank Russell Company or any entity doing business under the “FTSE RUSSELL” brand.
The Russell logo is a trademark and service mark of Russell Investments.
This material is proprietary and may not be reproduced, transferred or distributed in any way without the prior written permission of Russell Investments. It is delivered “as is” without warranty.
Publisher’s note: The bullet points in this article were chosen by the editors of Seeking Alpha.