With its mixed bag of repeated old pledges, updates to existing commitments and the formation of new initiatives, some would argue that COP27 didn’t add up to much overall.
We think that piecemeal progress was made in a number of areas, with governments and corporations showing a willingness to collaborate to secure support for investment and technological innovation.
Agreements made at the conference might also provide a tailwind for companies working across key sustainability themes, including renewables and electrification, sustainable food and water, sustainable transport, sustainable construction, and recycling and reuse.
The implementation COP?
COP27 in Sharm el-Sheikh, Egypt, concluded to somewhat mixed reviews. Some noteworthy milestones were reached, and important agreements made – including on the thorny issue of financial support for those developing countries that are most vulnerable to climate-related loss and damage. But progress was slower than it needs to be, given the accelerating pace of climate change and the physical and economic damage that accompanies it.
There were several disappointments, including the lack of material updates to the ambition of countries’ national climate targets. Without these updates, supportive government policy is unlikely to appear at the scale required to limit global temperature rise to 1.5°C above pre-industrial levels. Among other disappointing outcomes were the lack of hard details as to how many of the agreements that were secured will be carried out, and the lack of confirmed funding for neglected issues, such as climate adaptation. Whether the so-called “implementation COP” will live up to its nickname remains to be seen.
Nevertheless, there were a number of developments during the conference that we believe investors should be aware of. Many of these related to environmental sustainability themes that will be key for the transition to a more sustainable economy – such as renewables and electrification, recycling and reuse, sustainable food and water, sustainable transport, and sustainable construction. New initiatives and financing pledges launched at the COP addressed a broad range of sustainability challenges. We think these announcements could provide significant impetus to the innovation and deployment of sustainable solutions.
Supporting the energy transition
The need for more rapid action on climate change mitigation via comprehensive decarbonisation was clearly recognised. A coalition of 25 countries including the US, UK, Canada and the UAE launched the Breakthrough Agenda,1 intended to speed up the rate of decarbonisation across the high-emitting sectors of power, road transport, steel, hydrogen and agriculture. The remit is set to extend to buildings and the cement sector next year. The wide-ranging aims of the agenda include setting standards to favour low-carbon alternatives, coordinating government procurement to stimulate demand, and scaling up production through support for finance, demonstration projects, and research and development (R&D). While the framework must be backed up with concrete action, the Breakthrough Agenda represents a concerted international effort to shift demand and financial flows towards solutions that will support a successful transition to Net Zero. As such, it is something for investors to take into account when considering investment opportunities in these sectors.
Other agreements made at the COP drilled down into more specific themes and challenges. In the area of renewable energy, nine countries including the UK joined the Global Offshore Wind Alliance to work to remove barriers to the development of offshore wind – suggesting this area will be a priority for the UK government. The US government, meanwhile, announced its Energy Transition Accelerator initiative2 – a plan to leverage private capital to finance the clean energy transition in developing countries, partly by financing the phaseout of coal by selling carbon credits to polluting countries through voluntary carbon markets (VCMs).
The opportunity set for renewable energy investment is expanding on a global scale, with developments occurring beyond Sharm el-Sheikh. The Just Energy Transition Partnership model, for example, which originated at COP26 in 2021, enabled a USD 20 billion deal with Indonesia3 to be agreed at the recent G20 summit. The injection of funds over the next five years is intended to support the phase-down of fossil fuel-powered energy and maximise Indonesia’s use of its renewable energy resources while promoting economic growth, the creation of new skilled jobs and reduced pollution – in a similar manner to the deal agreed with South Africa a year previously. The spread of such models across emerging economies, backed by firm funding commitments from developed countries, could reduce barriers to renewable energy adoption and offer avenues for early-moving investors to benefit from increased demand for enabling solutions.
Promoting green technology and sustainable transport
Developments at the COP were not limited to the energy transition. The World Economic Forum First Movers Coalition4 of countries and multinational companies, launched by President Biden at COP26, announced USD 12 billion in financing for clean technology investments, and has launched new sectoral workstreams on cement and concrete.
Coalition members also announced a pledge to purchase at least 10% near-zero carbon cement and concrete by 2030 – a significant commitment, given the 40% contribution of the buildings sector to global greenhouse gas emissions. In conjunction with the emergence of more decisive governmental policy, such as the subsidies and tax credits included in the 2022 Inflation Reduction Act in the US, financing of this nature could have positive implications for the sustainable construction industry and for investors looking to allocate to sustainable construction solutions.
Sustainable transport was also on the agenda during the conference’s “Solutions Day”. The Accelerating to Zero Coalition, initially launched at COP26 to speed up the transition to zero-emission vehicles (ZEVs), received more backing from companies such as Volvo, and countries such as Germany, the US, Japan, South Korea and the UK. The coalition announced a total of 214 signatories to a ZEV Declaration, committing them to a global all-ZEV sales target by 2040, and 2035 in leading markets, as well as a plan for mobilising more assistance for electric vehicle transitions in emerging economies.5
The Green Shipping Challenge from the US and Norway, meanwhile, will look to encourage actors in shipping value chains to make Net Zero commitments in line with limiting global warming to 1.5°C. The aim is to promote the production of zero-emission fuels, the development of recharging capabilities for ships, and the deployment of low- or zero-emission vessels, alongside provisions such as green shipping corridors. The Green Shipping Challenge is a clear tailwind to companies working in the space of sustainable ocean transport – and with over 90% of the world’s traded goods carried via shipping, the scale of both the challenge and the opportunity involved is immense.
Action on sustainable food and water
There was no shortage of action on sustainable food and water at the COP, with whole days dedicated exclusively to the questions of water and nature. Climate change exacerbates food shortages by threatening both global crop productivity and the nutritional quality of crops. At the same time, food systems contribute heavily to climate change through the release of greenhouse gas emissions and land degradation. One of the major announcements was a doubling of investment from USD 4 billion to USD 8 billion from the joint UAE-US initiative, the Agriculture Innovation Mission for Climate.6 This initiative encompasses 30 “innovation sprints”, aligned with one or more focus areas such as smallholder farmers in low- or middle-income countries, emerging technologies, agroecological research or methane reduction.
Other announcements related to sustainable food and water included the launch of Food and Agriculture for Sustainable Transformation (FAST), an initiative designed to improve the quantity and quality of climate finance contributions to transform agriculture and food systems by 2030. FAST will support climate adaptation as well as food and economic security, with grants of USD 11 million from the Rockefeller Foundation to organisations scaling indigenous and regenerative agriculture practices around the world, and an Initiative on Climate Action and Nutrition7 in recognition of the enormous challenge posed by our unsustainable food systems and the interlinkages between climate and health. Among the objectives of the FAST initiative is advocacy for increased public financing directed towards R&D, with positive outcomes for climate and nutrition alike.
Meanwhile, the launch of Action for Water Adaptation and Resilience, in partnership with the World Meteorological Organisation, was a step towards addressing the urgent issue of water scarcity due to rising temperatures. As a critical part of national infrastructure, water is a difficult sector for private investors to access, but the innovations required to ensure that countries across the world can continue to access sufficient and sustainable water resources mean that opportunities are expanding. Blended finance vehicles along the lines of the African Cities Water Adaptation Fund8 look to attract private capital and catalyse implementation of projects through concessional loans and grants, alongside direct equity and subordinated debt investments.
Towards sustainable waste management
Last – but by no means least, given that the waste sector contributes more than 10% of greenhouse gas emissions globally9 – is the question of waste management solutions. Beyond recycling and reuse, participants at the conference looked to tackle the issue of waste where it is most acute. The “50 by 2050” initiative10, established by the Global Waste Initiative, set a target of treating 50% of the waste produced in Africa by 2050, where waste pollution is recognised as a severe impediment to the achievement of climate change mitigation and the United Nations Sustainable Development Goals alike.
Better solutions to the problem of plastic waste, in particular, is an imperative, given its role in carbon emissions, damaging ocean health and destroying biodiversity. Companies focused on innovations in the waste management sector could stand to benefit from such high-level political commitments and policy direction.
The investor view:
Targets set at COP meetings are a positive first sign of increased ambition on climate action. But targets alone are not enough to achieve the economy-wide decarbonisation needed to limit global warming. We believe the key drivers are innovation, technology and progress. As technology improves, costs for emerging solutions are reduced – and as innovative products become more widely affordable, production capacity is scaled up. That in turn reduces the cost even more, creating a virtuous circle.
Today we are seeing this process play out in many areas – such as renewable energy, energy efficient electric motors, heat pumps, household appliances, software that manages power in buildings, factories and power plants, electric vehicles and precision farming, to name just a few. While many of these technologies are already widely affordable, new developments are being worked on all the time, and here we see two critical initiatives on both sides of the Atlantic.
In Europe, the increasingly demanding energy standards set by the European Union effectively challenge companies to innovate. In practice, any company in the world that wants to sell into Europe needs to meet these ever-more stringent energy efficiency standards.
In the US, the Inflation Reduction Act will play a critical role in encouraging the onshoring of key technologies such as car batteries and solar panels, boosting further research into these areas to make them cheaper still, but also helping to subsidise emerging technologies such as hydrogen, which if it can be made cheap enough could represent the killer application in the fight against climate change. Hydrogen has the potential to turn renewable energy into a gas-like material that will in time heat our homes, be reconverted to electricity at times when there is less renewable energy available and one day power our cars and airplanes.
As technologies make alternatives to fossil fuels ever cheaper, it will become increasingly expensive to keep burning fossil fuels in the way we have done since the industrial revolution. In our view, the process of moving on from a technology that we have been using for hundreds of years is in full swing, and unlikely to change course any time soon.
Conclusion: Assessing the outcome for investors
COP27 left much to be desired, in terms of emissions reduction pledges, concrete implementation actions, and financing for climate mitigation and adaptation from the international community directed at the countries and sectors most in need of it. However, the multitude of agreements reached at the conference, targeting the climate emergency from all angles, should maintain investor confidence in the long-term opportunity that the transition to a more sustainable economy represents.
Despite the slow and fragmented nature of negotiations, the resulting patchwork of public funding commitments, new public-private financing solutions, and plans for technological innovation across sectors underscore our conviction that climate change entails a permanent paradigm shift for the financial industry. Many of the outcomes from COP27 should be top of mind for investors looking to insulate portfolios from climate change-related risks – and for those aiming to benefit from a varied set of opportunities.
1 United Nations Framework Convention on Climate Change (UNFCCC) Breakthrough Agenda. Available at: https://racetozero.unfccc.int/system/breakthrough-agenda/ (Accessed: December 6 2022).
2 ESG Investor, Energy Transition Accelerator. Available at: https://www.esginvestor.net/energy-transition-accelerator/ (Accessed: December 6 2022).
3 UK Government, Indonesia Just Energy Transition Partnership launched at G20. Available at: https://www.gov.uk/government/news/indonesia-just-energy-transition-partnership-launched-at-g20 (Accessed: December 6 2022).
4 World Economic Forum, First Movers Coalition. Available at: https://www.weforum.org/first-movers-coalition/media (Accessed: December 6 2022).
5 S&P Global, COP27: Global Pledge to Accelerate Shift to Zero Emissions Gets More Backing. Available at: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/111722-cop27-global-pledge-to-accelerate-shift-to-zero-emission-vehicles-gets-more-backing (Accessed: December 6 2022).
6 Reuters, COP27: Farm Climate Innovation Commitments Double to 8 billion. Available at: https://www.reuters.com/business/cop/cop27-farm-climate-innovation-commitments-double-8-billion-2022-11-11/ (Accessed: December 6 2022).
7 World Health Organisation, Initiative on Climate Action and Nutrition (I-CAN). Available at: https://www.gainhealth.org/sites/default/files/publications/documents/Initiative-on-climate-action-and-nutrition-I-CAN.pdf (Accessed: December 6 2022).
8 ESG Investor, COP27: Water Day seeks to unblock investment flows. Available at: https://www.esginvestor.net/cop27-water-day-seeks-to-unblock-investment-flows/ (Accessed: December 6 2022).
9 United Nations Office on Drugs and Crime, COP27 Side Event: Unmanaged Waste – a hidden cause of climate change. Available at: https://www.unodc.org/unodc/en/environment-climate/cop27-unmanaged-waste.html (Accessed: December 6 2022).
10 United Nations Office on Drugs and Crime, Combat illegal traffic of waste to help mitigate climate change impacts: COP27 side events co-organised by UNODC. Available at:
https://www.unodc.org/unodc/en/frontpage/2022/November/combat-illegal-traffic-of-waste-to-help-mitigate-climate-change-impacts_-cop27-side-events-co-organized-by-unodc.html (Accessed: December 6 2022).