Taking the Heat Out of COP27

1.5°C may still be on life support, but Sharm El Sheikh nevertheless saw progress on many fronts.  

Despite extreme geopolitical turbulence, hopes rose in the weeks leading up to COP27 that ambitious, collaborative strides would be taken to bring about sustainable and long-lasting changes that facilitate a global transition to carbon neutrality.  

Just over two weeks later, there is much to be happy about. Not least plans for a ‘loss and damage’ fund, which aims to help the most climate-vulnerable emerging markets and developing economies (EMDEs) cover the costs of climate change’s physical impacts. The fine print, including who is going to pay into the fund and how much, will be published at COP28 in Dubai, with a transitional committee planning to meet before the end of March 2023.  

“What we saw in Sharm El Sheikh is a strong demonstration that we have all we need to succeed – incredible technologies, large pools of capital looking for investment opportunities, and increasing understanding between public and private sectors – but we now need to act with a sense of urgency and scale that matches our ambition,” said Marc-André Blanchard, Executive Vice-President and Global Head of Sustainability at Caisse de dépôt et placement du Québec (CDPQ), a founding member of the UN-convened Net Zero Asset Owner Alliance (NZAOA).  

However, progress in some areas was limited by compromise in others, resulting in a disappointing final text issued in the early hours of Sunday morning.  

The Sharm El Sheikh Implementation Plan was criticised by the EU, the UK and others for its insufficient climate ambition. OPEC members and Russia were resistant to wording emphasising the need to upscale renewables, and Saudi Arabia pushed for the allowance of carbon capture and storage (CCS) technologies, through which oil and gas production can continue. The EU even threatened to walk away during the 36 hours of negotiations, concerned that plans were simply not aligned with limiting global warming to 1.5°C. 

“Of course, much more is needed,” Dr Rory Sullivan, CEO of specialist advisory firm Chronos Sustainability, told ESG Investor, noting that the summit was nonetheless a “modest step forward” in the face of “political and economic headwinds”.  

But with global warming already at 1.1°C, there is a growing sense that too much compromise will undermine the Paris Agreement’s ambition. 

“We are rapidly out of time to see appropriate policy steps taken to keep a 1.5°C future alive,” says Tamsin Ballard, Director of Climate and Environment at the Principles for Responsible Investment (PRI).  

Commitments made by governments must be backed up by coordinated policy action, including on shifting financial flows. We urge governments to keep the 1.5°C goal in sharp focus while pushing for further progress on issues such as just transition and biodiversity.” 

With policymakers, companies and investors preparing to put new plans, tools and initiatives into action, ESG Investor has collated opinions from industry on five of the biggest themes at COP27. 

Adaptation and Africa 

The Egyptian Presidency put Adaptation and Africa front and centre of COP27 with the Sharm El Sheikh Adaptation Agenda, an ambitious plan to drive public and private investment toward achieving 30 adaptation outcomes by 2030 across food and agriculture, water and nature, oceans and coastal, human settlements, and infrastructure systems to enhance resilience for four billion people highly vulnerable communities.   

Swami Venkataraman, Associate Managing Director at Moody’s Investors Service, said the creation of a 400-strong global pipeline of projects that are “credible, well-defined and structured to attract private investment” would do much to accelerate the flow of adaptation finance to EMDEs.  

“More projects could be added over time and the pipeline may emerge as a focus for investors looking to fund adaptation projects globally,” he said.  

Not only did it set the tone for a wide range of adaptation initiatives throughout COP27, by focusing attention on the Global South it changed the narrative of climate diplomacy, helping to pave the way for the loss and damage fund, the proceeds of which will ultimately bolster physical defences against climate change.  

“The slowness and avoidance of debates on climate justice and the lack of understanding about the diverse realities of the Global South increased empathy among non-developed countries. It resulted in advances, such as the agreement between Congo, Indonesia and Brazil, and several bilateral talks between governments outside the circle of richest countries,” said Jose Pugas, Head of Responsible Investments and Engagement at JGP Asset Management. 

Nazmeera Moola, Chief Sustainability Officer at South African asset manager Ninety One, highlighted the progress toward the Global Goal on Adaptation (GGA), which should be presented at COP28, but acknowledged that extended timelines provided limited immediate scope to channel private capital into adaptation projects in EMDEs.  

“The primary focus for asset owners in the short term should involve the climate resiliency of any real asset investments they make. In the medium-term, we would hope to see growth in risk mitigation capital available for adaptation projects to encourage private investment into them,” she said.  

Dr Amal-Lee Amin, Managing Director for Climate, Diversity and Advisory at British International Investment, said both the steps taken toward the GGA at COP27 and the assessment of progress for doubling adaptation finance, as agreed in Glasgow, would reinforce calls for an implementation plan on how countries’ national adaptation plans and priorities will be financed.

“New funding pledges of US$230 million to the Adaptation Fund are clearly insufficient, however governments are likely to channel funds via a range of other multilateral and bilateral channels,” she said.

Africa saw various sector-focused initiatives to support countries’ capacity for climate adaptation, for example in the water sector and agriculture, with public sector finance helping to attract private investment for adaptation. Amin cited Egypt’s NWFE initiative as providing “an interesting model” for increasing international cooperation to scale up finance for countries’ climate adaptation actions.

Despite the muted headlines at the end of the event, Amin said COP27 would mark “a significant shift” in emphasis towards a much greater role of the private sector in delivering climate adaptation in EMDEs. “This welcome departure from perceptions that only public sector funding is important should in time create significant new investment opportunities for private investors. Similarly, actions to remove barriers to private investment in adaptation and resilience should also be at the heart of measures to enhance the effectiveness of the international financial architecture,” she said.

Renewables transition

Notwithstanding an unsatisfactory final text, some progress was made to unplug humanity from its self-destructive dependence on fossil fuels.

According to the International Energy Agency (IEA), US$4 trillion needs to be invested in renewable energy globally every year by 2030 to achieve net zero by 2050. At least US$1 trillion of this needs to be annually invested in EMDEs.

However, shortfalls in clean energy investments persist, the IEA said, noting that “if China is excluded, then the amount being invested in clean energy each year in [EMDEs] has remained flat since the Paris Agreement was concluded in 2015”.

Ninety One’s Moola welcomed the advancement of Just Energy Transition Partnerships (JETPs) at COP27, noting that these partnerships are “particularly supportive of the build out of renewable energy projects”.

South Africa signed a JETP at COP26 in Glasgow, which committed France, Germany, the UK, the EU and the US to supporting its clean energy transition through US$8.5 billion in first-phase financing, provided through grants, concessional loans, investments and risk-sharing instruments over three to five years.

At the beginning of COP27, The International Partners Group (IPG) formally endorsed South Africa’s Just Energy Transition Investment Plandesigned to accelerate the decarbonisation of South Africa’s electricity sector by upscaling renewables, while protecting vulnerable workers and communities affected by the transition, supporting the sustainable repurposing of mine sites, and bolstering opportunities for green technology-related innovation through public and private investment.

It also paved the way for Indonesia’s JETP, which aims to mobilise US$20 billion to ramp up renewable energy, announced by G20 leaders in Bali.  

The IPG’s initial commitment of US$10 billion in public finance will be matched via a Glasgow Financial Alliance for Net Zero (GFANZ) working group, including Bank of America, Standard Chartered and Macquarie. 

Indonesian President Joko Widodo has already committed to closing down coal power plants to ensure the country’s power sector emissions peak in 2030. 

The growing number of JETPs being established by developing countries should provide new opportunities for the deployment of renewables, as well as realising a fair, fast and stable transition,” said PRI’s Ballard. 

“Visibility on the funding terms and transparency in the use of the public and private finance mobilised in the JETPs will be critical to international investors.” 

Other developments at COP27 included increased funding for the Energy Wealth Initiative, launched in May, which aims to shut down 5,000 megawatts (MW) of existing and inefficient gas-based power generation capacity in Egypt, while facilitating investments in the installation of 10,000 MW of renewable energy capacity. The European Commission has pledged to contribute to the initiative through a €35 million grant. 

The US’s proposed Energy Transition Accelerator (ETA), which aims to utilise voluntary carbon markets (VCMs) to finance the decommissioning of coal-fired power and the deployment of clean energy across EMDEs, may also play a key role but has so far split opinion.  


Having made its presence felt in Glasgow, nature had even more of a voice at COP27.  

“Positively, COP27 had a dedicated Biodiversity Day, with an emphasis on calling for an ambitious Global Biodiversity Framework (GBF) as we look ahead to COP15 in December and reversing nature loss,” said Gemma James, Senior Manager of Biodiversity and Nature at Chronos Sustainability. 

“That’s a different narrative from last year, as it recognises the interconnectedness of climate and nature beyond deforestation, and the significance of safeguarding nature in its own right.” 

Architects of the 2015 Paris Agreement issued a call to action to world leaders in Sharm El Sheikh, emphasising the importance of securing “a strong sister agreement for nature” if limiting global warming to 1.5°C is to remain achievable. 

The Enhancing Nature-based Solutions for an Accelerated Climate Transformation (ENACT) partnership was launched by the COP27 Presidency and the International Union for Conservation of Nature (ICUN) to enhance protection against climate impacts for at least one billion people, secure up to 2.4 billion hectares of natural and sustainable agricultural ecosystems, and bolster global mitigation efforts by protecting and restoring carbon-rich terrestrial, freshwater and marine ecosystems. It will work as a hub for governments and non-state actors to bring global coherence to efforts to upscale nature-based solutions (NbS). 

The Climate Investment Funds (CIF)’s Nature, People and Climate (NPC) investment platform announced that it will be investing US$350 million in NbS opportunities across Egypt, Fiji, Kenya, the Dominican Republic and the Zambezi Basin region.  

Viktoria de Bourbon de Parme, Food and Agriculture Transformation Lead at the World Benchmarking Alliance (WBA) said the launch of the Food and Agriculture for Sustainable Transformation (FAST) initiative will help to accelerate “transformation in agrifood systems to deliver for people, climate and nature”.  

Developed by the COP27 Presidency in collaboration with the Food and Agriculture Organization (FAO) and other stakeholders, FAST will promote food security and diversity by helping countries identify and access climate investments to improve agricultural practices across value chains.  

“The deforestation agenda limelight went to the new Brazilian President Lula da Silva, and the positive hopes and consequences for the Amazon as such an important biome for the climate and biodiversity,” said James.  

“But we heard relatively little on the progress of deforestation pledges made by different countries last year.” 

Irene Lauro, Environmental Economist at Schroders, highlighted the Forest and Climate Leaders’ Partnership (FCLP), through which 26 countries, co-chaired by the US and Ghana, voluntarily committed to accelerating momentum to halt and reverse deforestation and land degradation by 2030. 

It will promote international collaboration to ensure sustainable land use, mobilising public and private finance to invest in solutions such as carbon markets, while supporting Indigenous peoples and local communities and providing incentives for preserving high-integrity forests. FCLP member nations include Canada, Nigeria, Tanzania and Japan. 

“The launch of the FCLP is the most important development in relation to sustainable use of nature. The partnership accounts for over 33% of the world’s forests and will support international collaboration on the sustainable land use economy and supply chains,” said Lauro.  

“Policymakers and investors are putting more focus on nature and its importance to help reduce carbon emissions.” 

The finance sector 

Finance Day’ in Glasgow was billed as the day when the finance sector committed itself fully to tackling climate change, with the Glasgow Financial Alliance for Net Zero (GFANZ), the International Sustainability Standards Board (ISSB) and UK Chancellor Rishi Sunak’s pledge to build a net zero financial centre topping the bill.   

Finance Day in Sharm El Sheikh felt much more like an exercise in accounting and accountability, which is perhaps appropriate for an event positioned by many as ‘Implementation COP’. Banks, asset managers and other sub-sectors of GFANZ flagged their progress on the commitments made in Glasgow, while the umbrella body itself played a supporting role, often focused on the tools and mechanisms needed to ensure the finance sector and its corporate clients are transitioning business models in a timely, transparent and orderly fashion.  

“The fact that so much of the conference was focused on implementation – the role of the finance sector, the strengthening of supervisory mechanisms, the promise to follow through on promises – should give investors confidence that the momentum will be sustained and that governments have the resolve to press forward,” said Sullivan at Chronos.  

The GFANZ transition plan framework provided some of the foundations for draft guidance unveiled at COP27 by the UK’s Transition Plan Taskforce, representing the country’s first step toward the introduction of mandatory transition plans for listed corporates and large financial institutions.  

To support investors, the PRI’s Ballard suggested governments needed to go further in embedding climate goals in financial regulation, requiring disclosure on progress towards climate goals in investment activities, and through transition policies for polluting sectors.  

“To ensure that private sector finance is catalysed, not in the billions but in the trillions needed to deliver the goals of the Paris Agreement, we need to look at how governments can operationalise the objective of making financial flows consistent with low-greenhouse gas emission and climate-resilient development. In addition to the progress being made to scale investment in climate programmes and projects, we need to see strong policy frameworks that will back national decarbonisation objectives in the short, medium and long term,” she said. 

GFANZ provided much of the momentum and some of the personnel behind the Climate Data Steering Committee (CDSC), which issued an RFP, a consultation and a pledge to build a Net Zero Data Public Utility (NZDPU) by COP28, conceived as an open-source and accessible platform for all climate-related data from companies, financial institutions and governments. 

COP27 also saw the first fruits of UN Secretary General Antonio Guterres’ efforts to rid the finance and corporate sectors of greenwashing through increased scrutiny of net zero commitments. Announced by Guterres in Glasgow, the UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities arrived in Sharm El Sheikh armed with ten recommendations, and a pledge to end “bogus claims”.  

Given the level of consternation arising from GFANZ and certain sub-sector alliances distancing themselves from Race to Zero guidelines, a low profile at COP27 was not surprising. Brian Hensley, Partner at Kaya Advisory, said the growing disconnect between science and action by the private finance sector strengthened the case for regulatory action.  

“Unresolved tensions among GFANZ member blocs limited any calls for increased ambition at Sharm El Sheikh. With the flaws in voluntary frameworks now fully apparent, the rationale for government and regulatory intervention has never been stronger,” he said.  

Blended finance 

With both public and private sector financial institutions present en masse, Sharm El Sheikh should have proved fertile ground for new initiatives to upscale blended finance to EMDEs. 

A recent report by global network Convergence noted a 60% decrease in the scaling of climate-focused blended finance transactions between 2019-21 compared to 2016-18, with adaptation especially an “underdeveloped area”.  

Adaptation has not yet hit its stride as an asset class and has fewer broadly accepted investment structures,” noted Convergence CEO Joan Larrea. 

But many projects are building momentum.  

CDPQ’s Blanchard, a member of NZAOA’s blended finance working group, said asset owners are “actively working” with partners – including the UN Green Climate Fund – to develop a project that will support both climate mitigation and adaptation measures in low and lower-middle income countries.  

Rwandan President Paul Kagame emphasised the importance of public-private partnerships to addressing climate change when launching a new blended finance investment facility – Ireme Invest – developed by the Rwanda Green Fund and the Development Bank of Rwanda.  

The US government’s Millennium Challenge Corporation (MCC) and US Agency for International Development (USAID) announced they would be mobilising green investing across EMDEs through the Joint Green Finance Pilot Program. Targeting investment opportunities with select country partners developing compacts, such as Zambia and Mozambique, MCC and USAID hope to leverage more than US$1 billion, creating pathways for private investors to invest in scalable climate solutions. 

However, at a high level, messaging around the importance of blended finance remains inconsistent. 

“Within the Sharm El Sheikh Implementation Plan, there are no specific references to blended finance,” pointed out Brendan Curran, Policy Fellow for Sustainable Finance at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment (LSE GRI). 

But he said an upscaling of blended finance is implicit in its acknowledgement of the need for “a transformation of the financial system and its structures and processes, engaging with governments, central banks, commercial banks, institutional investors and other financial actors”. 

The Sharm El Sheikh Guidebook for Just Financing is more explicit: “In cases where projects have below-market risk-return, blended finance can be used to bridge the investment gap by enhancing the risk-return profiles. Commercially viable projects, on the other hand, would require investment facilitations to overcome transaction-level barriers and coordination challenges.” 

In September, the NZAOA called on policymakers to facilitate the scaling of blended finance structures to fund climate solutions, but more clarity is also needed from private investors, said Blanchard. 

“It is important that private sector representatives state clearly that we do want to take risks – without risk there cannot be returns. We have to find that sweet spot between risk and return that allows us to provide financing at affordable levels to developing countries on the one hand, while adhering to the fiduciary obligations to our beneficiaries on the other.” 

COP27 discussions didn’t focus enough on the development of investment platforms to crowd in institutional investors, Blanchard added, nor on the role of multilateral development banks (MDBs).  

He said: “MDBs were created at a time when institutional capital was fairly limited in volume. As a result, MDBs tend to undersupply instruments and deal structures that would crowd in the private sector and encourage greater co-investment. In my view, a far greater importance needs to be given to mobilising total investment into EMDEs, and this requires a revamping of the incentive structure of the MDBs and the development finance institutions (DFIs) so that they focus on mobilising private capital.” 

A number of MDBs made a joint statement at COP27, pledging that they would expand their support for countries’ climate transition efforts through a number of measures, including mobilising blended finance vehicles. The Network for Greening the Financial System (NGFS) also launched a new initiative to raise awareness of the effectiveness of blended finance among central banks and supervisors. 

Further advice was available via the report by the Independent High Level Expert Group on Climate Finance, which underlined the need for blended finance to be used to attract transition and adaptation finance to vulnerable countries but said more account needed to be taken of recent innovations.  

We still have a lot to do in order to unlock the trillions of dollars available for the transition, but everyone should stay focused on the primary objective, which is avoiding the unbearable human and economic cost of climate change,” said Blanchard.  

“COP27 was the first time we saw blended finance take a key role in these discussions and for us this is very encouraging, as we get closer to viable solutions across data availability, risk management measures, or new policies.” 

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