Government and industry representatives from across the globe will attend the next annual UN climate change conference (COP27) in Sharm El Sheikh, Egypt, in November to reassert their commitment to a global energy transition. However, COP27 expectations are being overshadowed by a global energy crisis and greenwashing controversy, so how will it still be relevant for businesses?
COP26, hosted in Glasgow, resulted in several countries turning up their energy transition plans in nationally determined contributions (NDCs) to the 2015 Paris Agreement. Countries also agreed to submit enhanced NDCs before the end of 2022, although many have failed to do this.
Since then, Russia’s unprovoked invasion of Ukraine has roiled the markets and geopolitics of energy, driving oil and gas prices to their highest levels in nearly a decade and forcing many countries to reconsider their energy supplies.
More than 200 governments are invited to this year’s event in Egypt. However, some leaders of major economies including Russian leader Vladimir Putin are not expected to attend, although delegates from the country are still expected to go.
Other countries, including China – the biggest polluting country in the world -, have not confirmed whether their leaders will participate.
Hosts Egypt have called on countries to put their differences aside and “show leadership”.
Environmental charities, community groups, think tanks, businesses, and faith groups will also take part.
The event has drawn criticism for being hosted in Egypt – given its poor human rights record. A report released by Amnesty International last year detailed significant human rights issues including unlawful or arbitrary killings, extrajudicial killings by the government or its agents, and by terrorist groups; forced disappearance by state security; torture and cases of cruel, inhuman, or degrading treatment or punishment by the government.
Furthermore, the announcement of Coca-Cola being named as the main sponsor of COP27 has led to outrage amongst environmentalists, who labelled it as greenwashing.
So, with COP27 fast approaching, will businesses, policymakers and other stakeholders’ concerns be overshadowed by geopolitical issues, and what are the main areas worth paying attention to?
Carbon credits
A big achievement of COP26 was its establishment of a set of rules to govern the use of carbon markets to help countries meet their NDCs under Article 6 of the Paris Agreement.
According to the International Emissions Trading Association, trading in carbon credits could save countries up to $250bn by 2030 on the cost of delivering their NDCs. However, the fear is that wealthier countries and companies will focus their energy transition efforts on purchasing credits instead of cutting their emissions.
Questions remain as to the types of activities that may give rise to credits under the Article 6 mechanisms, and the methodologies to be applied. Finally, the level of private sector participation in the credit market established under Article 6 remains to be seen.
Further negotiations on this matter are expected at COP27. In particular, it is expected that discussions will focus on eligibility criteria for credits under Article 6,particularly concerning greenhouse gas emissions avoidance, the methodologies for applying corresponding adjustments, the scope of disclosure obligations, the rules of procedure for the Supervisory Body and the CDM transition period.
The rolling out of emissions reduction projects without harming local people or the environment has been a concern too.
People are the victims in the fight against climate change
For COP27 to be relevant for businesses the event and its delegates must acknowledge that issues of local businesses and society like gender inequality, poverty and health are not just peripheral issues of sustainability, but are the human face of the climate crisis.
Environmental issues like natural resource management, biodiversity, and other planet-related elements in the discussions of COP27 are critical — but without society, equity and climate justice, the overarching objective of the conference will be lost. It will become a mere excuse for world leaders to put their agendas at the forefront and will lose its relevance.
Addressing the critical issue of climate justice at COP27 is of utmost importance. A failure to do so could plunge the world’s most vulnerable populations further into the economic and social despair caused by the pandemic, in danger of being exacerbated by climate change – unless at this year’s COP the world steps in, and makes sure that any efforts to counter climate change do not forget those most affected by it.
Climate finance for a just transition
The African COP has placed an accelerated just transition on policy agendas, particularly for the US. Representatives of Africa have warned they need time and money to wean themselves off fossil fuels to achieve net zero without jeopardising its future ahead of COP27.
With more than one third of Pakistan submerged in floodwater and 33 million of its people displaced, the urgency of prioritising climate-induced loss and damage is clear. Other climate-related disasters this year have included relentless sandstorms in the Gulf and unprecedented heat waves across Europe.
Climate finance advocates hope that having a lower-middle income nation hosting the upcoming COP will put pressure on the EU and US to cough up more cash. In Glasgow, these two major economies blocked the G77 and China from proposing a finance facility for climate change-related loss and damage.
Geopolitical obstacles
Previously, Covid had been the disruptor. This time, global geopolitics, war, and energy disputes are the aggressors against climate sustainability.
The COP27 website itself admits this risk. At the end of August, COP27 President Designate and Egypt’s Minister of Foreign Affairs Sameh Shoukry voiced concerns over backtracking on climate commitments.
Shoukry reiterated the need to further accelerate climate action on all fronts, namely in adaptation, loss and damage, climate finance, and adopting more ambitious mitigation measures to keep the 1.5C target within reach.
He acknowledged that the geopolitical realities in the world and the ensuing energy crisis
have opened the door for a slowing of climate progress.
“It is concerning to see coal coming back as a source of energy in some parts of the world. It is equally concerning that those climate finance commitments, especially the 100 billion dollars goal, are still lagging in implementation while the needs of developing countries continue to rise, most recently estimated by the UNFCCC’s Standing Committee on Finance to amount to 5 to 11 trillion US dollars,” Shoukry said.
“Egypt believes that the role of the G20 is essential in this regard. As the biggest and the most politically and economically influential group of countries, G20 members should play a leading role in ensuring that the challenges created by the current global situation do not serve as a pretext or justification for the continued delay in the fulfilment of climate pledges, or backtracking on hard-earned gains in the global fight against climate change,” he added.
NDCs are at the heart of the Paris Agreement and the achievement of long-term goals.
NDCs embody mitigation efforts by each country to reduce national emissions. 2022, it is hoped, will witness the implementation of the Glasgow Pact call to review ambition across NDCs, and new work programmes for mitigation to limit global warming to below 2 °C while working hard to keep the 1.5 °C target alive.
This requires bold and immediate actions and raising ambition from all parties; in particular, those who are in a position to do so, says the COP27 site. The US, China, and India all spring to mind as likely targets for this comment. But again, the fear of energy insecurity may stymie progress.
Certain countries may seek to leverage the energy crisis as a means to delay tighter measures on the fossil transition and funding. Expect therefore some tough conversations citing energy insecurity, while progressives kick back saying we can’t delay the coal switch-off.
Thematics
From a business perspective, it’s tricky to analyse any key thematics likely to emerge beyond the certainty of fractious affairs, with success and failure hanging on often last-minute decisions.
1.5 °C and 2 °C top-level targets are a certainty, and there is hope that tighter NDCs and work programmes will come. Evidently, that could impact businesses by hastening the green economy.
KPMG notes that many global net zero targets have limited detail on near-term plans to reduce emissions; essential if we are to have a chance at 1.5 °C. Movement here could also make real-world business change for net zero more likely.
Yet; existing commitments made by India, Russia, Brazil, Saudi Arabia, Australia and others already mean at least 90 per cent of the world’s economy is now signed up to net zero targets, says KPMG.
And it’s fair to argue businesses are already far more engaged than ever before. This was demonstrated at COP26 by the Glasgow Financial Alliance for Net Zero (GFANZ), which has US$130 trillion of assets under its control.
Clean finance, says KPMG, can now play a critical role in driving activity irrespective of changes in government policy. It’s becoming increasingly clear that the institutional investment world is starting to exercise real influence through investment policy.
This all means that businesses meeting at the event can drive real-world change through engagement with organisations like GFANZ, or if not attending, they can reach out in other ways.
This is likely not only to make their operations more profitable but will hasten the green transition and speed up sustainability in ways global governments, hamstrung by the politicisation of the energy crisis, may need to do more.
The message may be; businesses can pick up the pace, while governments wait for a politically opportune time to spend on sustainability, undiminished by fears about where energy is coming from.
