The headline news out of COP27 looked almost like an admission of defeat in the fight to contain global warming: an agreement to help developing economies cope with climate disasters made worse by wealthy nations’ greenhouse gases. While ultimately the conference renewed the commitment to the 1.5-degree Celsius target, there was no meaningful progress in securing stronger commitments from governments — aside from bigger pledges to reduce methane emissions by China and a few others. Some at COP even warned that the goal might be slipping out of reach.
At the start of the climate summit, the pessimistic tone was set by an admonition from United Nations Secretary-General Antonio Guterres that “we are on a highway to climate hell with our foot still on the accelerator.” Every degree of warming was taking us closer to critical thresholds, such as the collapse of Greenland’s ice cap, which would mean devastating and potentially irreversible changes in sea levels and weather patterns. Scientists now consider it only a matter of time before the world hits some of nature’s tipping points — all with the potential to cause significant death and destruction.
Yet away from the main negotiations, there were more positive narratives to be found — with optimists pointing to the potential for tipping points of a different kind. At COP27, there was intense investor focus on new technologies and solutions in support of the transition — advances that can scale rapidly and in unexpected ways to become commercially viable. This enthusiasm has been turbocharged by the current energy market’s instability in the wake of the Russian invasion of Ukraine, which has made clean energy a matter of national and global security.
What was encouraging about these discussions was how many did not focus on big-picture targets and commitments but rather on practical measures being taken on the ground to produce emissions reductions. There is a growing view that we must respond with what we have. Our conversations in Sharm El Sheikh with policymakers, businesses, and civil society representatives delved into partnerships, innovations, and investments developing new low carbon technologies at scale right now.
While none will be sufficient to get us to a 2030 goal by themselves, they are moving us in the right direction toward a lower-carbon economy.
Here are five takeaways from COP27 that give us hope.
1. The financial sector made progress under pressure
2021 saw the financial sector take center stage at COP with a wave of net-zero commitments. This year the tone was more muted as the sector wrestled with the practical realities of implementing these commitments under challenging circumstances. Many institutions talked of being pressed on one side by activists demanding a faster move away from fossil fuels and on the other by legal challenges from the “anti-woke capitalist” movement worried about faltering markets.
Yet it was clear from our discussions that many major financial institutions are serious about channeling investment toward net-zero transition efforts and are rapidly building the apparatus to carry out their plans.
- The movement has grown in scale. The Glasgow Financial Alliance for Net Zero (GFANZ) has grown from 450 members at COP26 to more than 550 a year later.
- Transition plans are underpinning the move from concept to implementation. GFANZ put forward a 10-point framework for transition planning, setting out practically how to incorporate net-zero strategies that can be embedded in corporate business models. Meanwhile, regulators in the United Kingdom and European Union are moving to make these plans mandatory. The International Sustainability Standards Board (ISSB) and the Securities and Exchange Commission in the United States are also considering similar proposals.
- Better data may soon be available for decision-making. The Climate Data Steering Committee, sponsored by French President Emmanuel Macron, outlined the operations of the Net-Zero Data Public Utility, a new open-data resource designed to provide a publicly accessible data repository of private-sector climate data. The CDP also announced it would incorporate the ISSB climate-related disclosure standard into Its global environmental disclosure platform.
- The insurance industry appears ready to step up. The Partnership for Carbon Accounting Financials published its consultation paper on measuring Insurance-associated emissions — critical data that will allow the industry to convert underwriting net-zero aspirations into action. Meanwhile, the role of insurance to support the funding and scaling of new technologies was also gaining prominence. As one of the global banks pointed out, banks like credit risk, not project risk, reinforcing the opportunity for Insurers to smooth the flow of funds to critical development projects.
2. The world is ready to move on from fossil fuels to clean energy, and the US is leading the latest push
It was clear at COP27 that there is now more widespread support than ever for the urgent need to phase out fossil fuels. While the conference stopped short of agreeing to a text that enshrines the transition, it was clear that the debate has shifted profoundly, not only in Europe.
There was much discussion of the Inflation Reduction Act in the US, which has committed $369 billion of government funding for climate-related spending and clean-energy tax credits. This historic legislation has positioned the US at the forefront of the latest push for clean energy, making America an attractive destination for private-sector investment and throwing down the gauntlet to other countries.
But there were other initiatives, such as the First Movers Coalition’s announcement that its membership had grown to 65 major corporations, all of which have committed to purchasing a combined $12 billion worth of low-carbon technologies in seven sectors by 2030. The UK also pledged another £65.5 million for the Clean Energy Innovation Facility, which provides grants to researchers and scientists in developing countries to accelerate the development of clean technology.
Discussion in business and finance circles at the conference concentrated heavily on clean technologies and the innovative finance needed to fund the transition of hard-to-abate sectors where the frameworks and parameters are becoming increasingly clear.
Analysis by Bloomberg New Energy Finance in the run-up to COP27 indicated that $4 of investment in renewable energy is required for every $1 invested in fossil energy sources if the world is to meet its net-zero targets. Encouragingly, much of the renewable energy technology is already proven and operational. An Oliver Wyman initiative with the World Economic Forum laid out the financial blueprints to scale-up proven technologies.
3. The voluntary carbon markets got a new lease on life
Carbon markets were a hot topic at COP27, thanks to new data, analytics, and trading solutions that increased the transparency of the marketplace as well as improved confidence in it. While there is still a long way to go, activity is being bolstered by new standards from groups such as IC-VCM.
The fundamental appeal of voluntary carbon markets is their potential for putting a price on emissions so that companies will be able to quantify the pain from not reducing them. Carbon markets may eventually provide a significant way to raise money in developed economies to fund emissions-reducing activities in developing markets.
- The UN high-level expert group on corporate greenwashing, led by Catherine McKenna, strongly encouraged companies to fulfill their interim carbon reduction targets by offsetting remaining emissions with high-integrity carbon credits.
- US Climate Envoy John Kerry announced the Energy Transition Accelerator, which aims to use carbon credits to fund decarbonization projects.
- Bloomberg Philanthropies announced the launch of the Global Carbon Trust, a collaboration with the Three Cairns Group that aims to provide scalable infrastructure for voluntary carbon markets.
- The International Organization of Securities Commissions launched a consultation into the voluntary carbon market, and the Commodity Futures Trading Commission also has a consultation ongoing, a sign of regulators’ growing interest in this topic.
- The Africa Carbon Markets Initiative launched, with representatives from Kenya, Malawi, Gabon, Nigeria, and Togo. It aims to produce 300 million carbon credits annually by 2030.
4. New finance frameworks responded to emerging markets’ needs
COP 27 heard from a vocal contingent of emerging market and developing economies (EM&DEs), many of whom wanted to hold heavy-emitting countries accountable for the climate crisis. While having historically contributed relatively few emissions compared with advanced economies, these countries are significantly more vulnerable to the consequences of climate change. The announcement of a new fund to help compensate EM&DEs countries for loss and damage from natural disasters exacerbated or caused by climate change was a major breakthrough on a totemic issue. Much is yet to be defined in how this will work, with the funding arrangements and the fund to be operationalized at COP28.
A key area of discussion was the role of Multilateral development banks (MDBs) – a longstanding issue that saw renewed calls for reform after only limited progress. The final agreed text called for a significant increase in climate investment by MDBs and for their shareholders to push for reform in their practices and priorities to catalyse further private finance, rather than to crowd it out. COP26 president Alok Sharma reiterated the need for a “Bretton Woods 2” type reform effort, and this was reflected in the final agreement.
Encouraging progress was made through a landmark initiative straddling the public and private sector, with MDBs providing technical assistance. The Just Energy Transition Partnership (JETP), a donor country backed initiative, was established to support the transition of the EM&DEs. The Partnership announced, over a three-to-five-year period, to mobilize $20 billion in grants, concessional loans, market-rate loans, guarantees, and private investments for Indonesia. The partnership targets a peak in the power sector’s emissions by 2030 and a shift to net zero by 2050.
- The UN Race to Resilience (R2R), a joint initiative with the UN Climate Change High-Level Champions, the Adrienne Arsht-Rockefeller Foundation Resilience Centre and Marsh McLennan, launched the Insurance Adaptation Acceleration Campaign, which aims to mobilize over 3,000 insurance companies, representing 50% of the global market, to increase their capacity to reduce strengthen resilience and adaptation to physical climate risk change impacts.
- Countries converging on the Global Goal on Adaptation, and announcing new pledges to the Adaptation Fund, worth over USD 230 million.
- The new UAE-US Partnership for Accelerating Clean Energy aims to catalyze $100 billion in financing and investment to deploy 100 new gigawatts (GW) of clean energy by 2035.
- In addition, the World Bank announced the Global Shield Financing Facility (GS-FF) to channel capital to protect vulnerable nations against climate and disaster risks.
- The United States said it would expand early-warning systems and meteorological observation support for disaster events in Africa. The insurance and wider financial sectors are progressively taking on roles in the global transition.
- Another landmark partnership between Egypt and the US, with support from international banks and energy and climate finance bodies, targeted $10 billion of investment this decade for the Nexus of Water, Food and Energy.
5. There was a push for protecting nature as a way of protecting the global economy
An estimated $44 trillion in global economic output — half the world’s total — is either highly or moderately dependent on nature, and growing attention is being given to how to measure, mitigate, and fairly price the related risks. COP27 on climate change heard calls for a “sister” pact to the Paris Agreement for nature – the Global Biodiversity Framework - to be agreed at the upcoming COP15 of the UN Convention on Biological Diversity. A paper by the International Union for Conservation of Nature (IUCN) paper called for nature-based solutions to be used for conservation, restoration, and adaption to climate change. The report highlighted the underappreciated value of natural defenses: Mangrove swamps, for example, were estimated in 2020 to provide an annual $65 billion worth of flood protection to over 15 million people.
For businesses, an nature materiality assessment can highlight their impact and dependencies on nature, sparking a shift in mindset so that an organization considers nature risks and opportunities in its decision-making. The Taskforce for Nature Related Financial Disclosures (TNFD) has led on defining a risk management and disclosure framework which aims to support businesses to report and act on nature-related risk. the Financial Sector Deepening Africa (FSDA) TNFD pilot, supported by Oliver Wyman, have supported organisations in this critical first step. Marsh’s recent report on “Embracing Nature” also showcases how businesses can engage with new environmental imperatives.
- The TNFD has been publishing its beta framework through 2022 with its most recent v0.3 release published in November 2022.
- Nature-related disclosures will be instrumental in driving global financial flows to positive outcomes for nature. The TNFD has published a pilot of nature scenario narratives to help businesses assess potential to progress and scenarios.
- At COP27, Brazil President-elect Lula da Silva pledged “zero deforestation and degradation of biomes” by 2030.
- The European Corporate Sustainability Reporting Directive (CSRD) comes into effect in 2024, requiring reporting on environmental issues beyond climate, and for a larger scope of companies.
The headline announcements at COP27 made clear the challenges we face in bringing about the rapid acceleration in emissions reductions we need. It also underscored the growing concern about the economic and human consequences of the changes to the climate that are already occurring. Beyond the headlines, however, the conversations we had on the ground left our team encouraged that progress is being made. Many key governments, financial institutions and corporates are more committed than ever to the cause. The capital is there, most of the required technology is now commercially viable, and COP27 saw new mechanisms to unlock it. There was a new lease of life for voluntary carbon markets and innovative public-private finance were evident. And there is a growing focus on the practical realities of how to make nature-related considerations more instrumental in driving business activities. Amid many pessimistic developments, this gave us cause for hope.
Huw van Steenis, Vice-Chair at Oliver Wyman, contributed as an author.