This week’s major stories impacting ESG investors, in five easy pieces.
All eyes were on COP this week, but not necessarily the same COP.
Adaptation COP – Egypt used the authority of the COP27 Presidency to launch the Sharm El-Sheikh Adaptation Agenda, a list of 30 adaptation outcomes aimed at enhancing resilience for four billion people living in the most climate vulnerable communities by 2030. Adaptation was always going to be on the agenda at COP27 following the IPCC’s report on impacts, adaptation and vulnerability. Alongside a shared set of adaptation actions across food and agriculture, water and nature, coasts and oceans, human settlements, and infrastructure, the adaptation agenda included targets for finance: more private sector innovation in the mechanisms to finance adaptation and resilience; and a 50% share of public sector climate funding. Recent figures on private sector adaptation finance and the latest report from the Independent High-Level Expert Group on Climate Finance outline the steep climb ahead. Further involvement for the finance sector was announced with the launch of the Race to Resilience’s Insurance Adaptation Acceleration Campaign, which aims to mobilise 3,000 insurance firms globally to scale the industry’s ability to advance climate risk reduction.
Implementation COP – The finance sector took COP27’s ‘implementation COP’ theme to heart, using Finance Day to demonstrate progress on net zero commitments since Mark Carney officially launched GFANZ in Glasgow 12 months ago. While banks, asset managers and asset owners all provided accounts in varying levels of detail on their net zero targets and actions taken to achieve them, there was a sense that most of the real implementation still lay ahead. The gaps and inconsistencies in these initial progress reports are inevitable, but tough love and transparency are at hand, both through a net zero public data platform designed to shine a light on net zero pledges and UN-backed guidance on their construction and consequences.
African COP – As well as adaptation COP and implementation COP, this is the African COP. UN Secretary General Antonio Guterres noted in his opening address: “There is no adapting to a growing number of catastrophic events”, and set “concrete results on loss and damage” as a litmus test of the commitment to the success of COP27. Throughout the World Leaders Summit, heads of government from across Africa, as well as the Alliance of Small Island States, made clear the need for material progress in Sharm El Sheik on loss and damage, admitted to the COP agenda for the first time. But the first week of COP27 also saw many specific initiatives focused on Africa’s mitigation and adaption challenges, including the African Manifesto for Sustainable Cities, the Mangrove Breakthrough, the Africa Sustainable Commodities Initiative Declaration, and the African Climate Risk Facility. For those looking to support mitigation and adaptation in Africa and beyond, the UN Climate Change High-Level Champions new ‘Assets to Flows’ primer could prove valuable.
Do we have an ETA for the ETA? – Never one to shirk a challenge, US Special Envoy for Climate John Kerry chose Finance Day at COP27 to tackle both the credibility of carbon credits and the cost of decommissioning coal-fired power generation in developing countries. The need is there: the pace of renewable energy transition in countries in parts of Asia and Africa is severely threatened by extensive reliance on coal-based electricity. And negotiators will be working hard at Sharm El Sheikh to build on the progress made in Glasgow toward finalising the Paris rulebook, with the intent of ensuring carbon credits can be a viable channel for private finance to fund nature-based climate mitigation and adaptation projects in developing markets. Progress has been made throughout 2022 on increasing the integrity of voluntary carbon markets, national financial markets regulators now also have guidance from IOSCO, and African regional initiatives are springing up. But Kerry and company - including the Rockefeller Foundation and the Bezos Earth Fund – still have much work ahead of them to convince sceptics that the Energy Transition Accelerator can hurry coal’s demise and support UN SDGs, while avoiding becoming a vehicle for greenwashing. The price of Kerry’s credits must be one worth paying.
Red ripples – Kerry’s boss, US President Joe Biden, will address COP27 today, fresh from a better-than-expected performance for his Democratic Party in the US mid-term elections, where a red wave failed to materialise. With Republicans expected to hold a slim majority in the House and no clear result in the Senate, Biden’s flagship Inflation Reduction Act can set America’s course to a low-carbon future on relatively calm, undisturbed waters. And while the US Securities and Exchange Commission retains the votes needed to pursue its ESG agenda, including climate risk disclosures, litigation to limit the new rule seems inevitable, as does further anti-ESG rhetoric and policies from red states. Congressional hearings on ESG have been mooted, but as the travails of social media giants mount, legislators might be better served focusing their attention on proven harms to the electorate.