COP27 in the Egyptian resort of Sharm El-Sheikh was the latest opportunity for governments and non-state actors to gather and agree on a feasible plan to deliver on the Paris Agreement.
After COP26 in Glasgow, when the focus was very much on ambition and commitments, this year’s summit was expected to focus on implementation. In the end, COP27 presented a mixed bag, achieving little to tackle the causes of climate change while delivering some positive developments on reducing the impacts.
In the wake of COP27, the Net-Zero Asset Owner Alliance (convened by UNEP FI and the Principles for Responsible Investment), called on national governments to raise their ambition until they are aligned with a low or no-overshoot 1.5C pathway, including explicit and meaningful short-term commitments to phase down fossil fuels and ultimately phase them out.
The alliance urged governments to work harder and faster in the next 12 months to COP28, to keep the Paris target alive and support businesses and investors that are taking tangible action to achieve net-zero emissions by 2050.
UNEP FI and partners also mobilised over 600 investors representing almost US$42 trillion in assets under management who signed the 2022 Global Investor Statement to Governments on the Climate Crisis. The statement represents a unified investor call on governments to implement the policy actions needed to address the climate crisis and accelerate the transition to a net zero emissions economy, in line with what scientific consensus calls for.
‘Loss and damage’ and other positive outcomes
Sought by climate-vulnerable developing countries for 30 years, the landmark agreement to establish a ‘loss and damage’ fund represented the biggest breakthrough in a summit lacking big policy announcements.
Putting a financial cost on the physical impacts of climate change that countries are already experiencing will help keep up the pressure on major emitters, while providing developing countries with new funding. Details of how the fund will work and who will contribute are to be worked out.
Another significant development was the strong call at conference for the decision text to reference the need for structural reforms of the international financial architecture, commonly referred to as the ‘Bretton Woods system’, to better serve both climate and development goals.
The Just Energy Transition Partnerships (JETP) were hailed as a significant advance, with USD20 billion for Indonesia’s coal phase-out coming during the G20 summit. Further agreements are in the pipeline for Vietnam, India (set to be announced during its G20 presidency) and Senegal. South Africa published a 200-page report on the investment plan for USD8.5 billion that was announced at COP26.
COP 27 didn’t close the delivery/ambition gap
Analysis from the IEA found that the ambition gap had marginally improved to 1.7C (up from 1.8C last year). Yet, the COP decision text did not include language on the phase-out of fossil fuels, established in Glasgow last year, and included the last-minute addition of “low-emission” energy (presenting a potential loophole for gas).
The final text, therefore, contrasts notably with The United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities (HLEG) report, which recommended an end to exploration and the expansion of oil and gas for investors and companies with net-zero commitments.
No progress was made in closing the delivery gap, between Nationally Determined Contributions (NDCs) announcements and current policies, which the Intergovernmental Panel on Climate Change (IPCC) estimates put the world on track for warming of 2.7C – 3.2C by the end of the century. Without progress on effectively limiting warming, the new loss and damage fund risks becoming an open-ended and unfundable liability. Or as the WWF stated: a “fund for the end of the world”.
The growing importance of recovering from overshoot
The mixed COP outcomes mean that 1.5C is still in play, yet leading climate scientists are increasingly concerned that an overshoot, at least for several decades, is likely and will start at some point in the next 20 years. Jim Skea, IPCC WG III co-chair, has described this as “almost inevitable” and 500 academics have signed a public letter in support of this. This new reality should be a spur for more rather than less urgency, as preventing every tenth of a degree of additional warming would prevent more catastrophic impacts of climate change and save lives.
UNEP FI contributions and launches at COP
Climate change mitigation
- During COP’s Finance Day, the Net Zero Banking Alliance (NZBA) launched its inaugural progress report, compiling and analysing the first body of intermediate decarbonisation targets, for attainment latest by 2030, as set by over 60 member banks of the Alliance. Among other analyses, the report provides – for all key exposures to NZBA priority sectors – the full range and average values of emissions reduction targets as published by member banks.
- Ahead of COP, the Net Zero Asset Owner Alliance (AOA) launched its second progress report, detailing how of the total of USD 10.5 trillion in assets under management in the Alliance, over USD 7.3 trillion of those assets now are under a formal decarbonisation target, for attainment already by 2025. In addition, the NZAOA published positions and calls to action on: i) blending public and private finance for climate impact in developing countries; ii) expectations of asset managers regarding portfolio decarbonisation in private, non-listed assets/markets; iii) and the need for net-zero aligned investment benchmarks. Earlier in the year the Alliance had published an important position on the need for meaningful and widespread governmental carbon pricing.
All intermediary targets as set by NZBA and NZAOA members are science-aligned and based on IEA or IPCC modelled pathways consistent with 1.5 degrees at no/low overshoot.
- The Net-Zero Insurance Alliance has collaborated with the Partnership for Carbon-Based Accounting to develop the first global standard to measure and disclose insurance-associated greenhouse gas (GHG) emissions. A final version of the Standard was published on 16 November 2022, during COP27. The Alliance is also working with the Science Based Targets initiative (SBTi) to develop its target-setting protocol, to be finalised in Jan 2023. A first draft of the document went under public consultation in November 2022.
UNEP FI also published a blog series discussing how investing in women can also lead to a reduction in carbon emissions and the role of women in leading a just transition. The final post to be published soon will examine some of the innovative approaches UNEP FI members and other financial institutions are taking to support gender equality, and how that contributes to the goals of the Paris Climate Agreement.
The climate and nature nexus
At COP, financial institution members of the Good Food Finance Network’s High Ambition Group publicly announced targets for their food and agricultural portfolios, combining various relevant impact areas at the nexus of nature, climate, and people. This demonstrated how financial institutions are starting to address multiple, intertwined sustainability impact areas; and how they are starting to work together to increase the capital invested in sustainable food systems, use their influence to improve policies and access to finance, and drive companies to adopt more sustainable food systems practices that deliver healthier diets. On Biodiversity Day at COP27, UNEP FI also published an article highlighting the importance of considering nature in all efforts to mitigate and adapt to climate change.
Climate change adaptation
Over the past year, focus has intensified on the accelerating impacts of climate change, which were laid out in the IPCC’s 6th Assessment Report, Working Group 2.
As a result, UNEP FI has recently launched two reports on physical risks and climate adaptation for financial institutions. As part of its Task Force on Climate-related Financial Disclosures (TCFD) Programme, Physically Fit? provides a snapshot of the current state of banks’ and investors’ disclosures of physical climate risks. By identifying gaps in current risk disclosure practice, the report provides guidance on disclosing in line with the recommendations of the TCFD with links to good practice case studies.
Going beyond risk management, Adapting to a New Climate, produced jointly by UNEP FI banking, climate and regional teams, frames the issue of climate adaptation in the global banking sector.
This report first looks at the current context of physical climate risk identification and assessment in banks globally, including in two focal regions: the Middle East and North Africa, and Latin America. Finally, the paper proposes next steps and considerations for advancing adaptation in the banking sector. A Principles for Responsible Banking (PRB) working group on climate adaptation will launch in 2023 to develop a set of impact guidelines and complement net-zero alignment under the responsible banking framework.
Adaptation requires greater cooperation between private and public finance. To this end, UNEP FI will also run the Secretariat of the Adaptation & Resilience Investors Collaborative, a group of 18 Development Finance Institutions (DFI) to develop tools and research on adaptation metrics, physical risks and innovative financial approaches to climate adaptation.