As the smoke clears from a tumultuous two-week period of discussions, events and announcements in Sharm el-Sheikh, we reflect on the COP27 summit and how its outcomes relate to the investment management sector.


Major outcomes of the COP:

Loss and Damage Fund: In the waning moments of COP27, a deal was struck to establish a fund to offer loss and damage compensation to nations in which climate change is driving economic and social disruption. A target investment, a schedule for implementation, and the sources and beneficiaries of the financial package are still to be specified.

Natural Disaster Early Warning Systems: The UN set a goal of $3.1 billion in investment over the subsequent five years to develop early warning systems for natural disasters, in cooperation with national governments. This program will concentrate on helping the nations that are most vulnerable to natural disasters and climate change.

No decision on the governance of the Warsaw International Mechanism: Parties could not agree on whether this mechanism should be under the governance of COP (which would hold developed countries to account) or the Paris Agreement (which excludes liability).

New climate finance goal delayed: The new climate finance goal, set to replace the $100 billion annual target which has not been met, was delayed another year. A paper exploring the decision mentioned the fact that climate finance shouldn’t be worsening the debt burdens of developing nations.

On the 1.5°C temperature limit: In order to remain in line with the 1.5°C target set out at COP26, governments promised to return each year with stronger commitments to reduce greenhouse gas emissions.


How is the financial sector affected?

Azy Kiai, our Senior VP of Marketing in the United States, previously shared expectations for COP 27 in a prior blog. When asked recently about how the financial sector may be affected in the following months, she noted that this year’s COP “saw very little presence from the financial industry, which could signal a lack of commitment to come.”

This year we saw many of the industry’s leaders – including BlackRock CEO Larry Fink and Citigroup CEO Jane Fraser – fail to attend the summit, in stark contrast to the enthusiasm exhibited at Glasgow’s COP26 last year.

“Energy is another key topic to come out of COP27 and financial institutions will continue to pay close attention in this sector, regardless of sustainability efforts,” noted Azy: “ESG activists in the US in particular are grappling the fossil fuel industry, and amplifying criticism of investment managers with interests in this sector.”

An example of questionable positioning in the energy sector arose just last week, as the US House Committee on Oversight and Reform obtained documents from leading energy companies that undermine their ‘transition’ messaging.

Azy added that:

“Investments in infrastructure, real estate industrials and agriculture, among others, will likely be affected. From a responsible investing point of view, investors’ appetites and behaviors are shifting in some markets (US). New regulations in the US (SEC ESG disclosure requirements), UK (SDR) and Europe (SFDR) will play a role in holding asset managers to particular standards when it comes to ESG investing and marketing.”

The role of regulation is one that investors are keenly monitoring, as the updated SFDR regulation is set to be enforced from January. We will be releasing a series of content pieces delving into regulation in the new year, which you’ll be able to stay updated with on our LinkedIn.


Has the social crisis been downplayed in the COP27 conversation?

One of the prominent emerging trends at the COP was an increasing emphasis on the social dimensions of sustainability. When Azy was asked if the social crisis been downplayed in the COP27 conversation, she commented:

“Yes and no. We expected a lot of conversation around the new Loss and Damage Fund – which addresses the issue of just transition from a financial responsibility perspective – and it did, in fact, become a key highlight of this COP. It places the financial responsibility for climate change on developed countries, which have historically been the biggest contributors to climate disasters, and eases pressure for underdeveloped countries who lack the infrastructure and/or funds to mitigate loss and damage.”

It has been disclosed that, in 2021, more than half of the world’s CO2 emissions were from three sources: China (31%), the US (14%) and the European Union (8%). $2trn will be required by the Global South by 2030 to offset their effects. Azy adds that:

“Issues like displacement have been elevated in this sense, but it remains to be seen what this looks like practically, given shifting priorities for governments around the world. We’ve already seen some hesitation from countries like the US and China, with the former not wanting to commit any dollar amount and the latter not participating in the discussion at all.”

Switching our focus from national leaders who choose not to engage in the climate discussion to those who are being largely excluded from the discourse, Azy notes:

“Outside of the fund, there were two days dedicated to social issues during the summit – one discussing the role of women (particularly women from underserved communities in developing countries) in climate change and the other to gather youth perspectives as we look forward to the next generation of activism. Neither has received mainstream attention post-event.”

This comes after 15 organizations and financial institutions, including Legal & General Investment Management, Aviva and The 30% Club, called for gender equality to be integrated into climate finance discussions during COP27 ahead of the summit.

For many developing countries existing in the ominous shadow of climate change, there is tangible frustration over the lack of significant movement on climate equity and justice. The results of COP27 have not significantly reduced the size of this challenge, so a strong sense of urgency will be key as we look to address these issues and drive forward further action at COP28 in Dubai.

Looking for more COP27 content? Stay tuned for our How are we as financial marketers going to respond to COP27 in 2023 and beyond video, to be released soon.