Reasons to be optimistic

In some respects, there are reasons to be optimistic about COP 27 this year.

US politicians passed the inflation reduction act, the largest investment in addressing climate change in US history. President Lula’s narrow election victory is good news for Brazil’s rainforests.

European policy makers are committed to Fit for 55 – the EU’s plan for a green transition. The newly elected Australian government signed up to the global methane pledge. Kenya committed to plant 15 billion trees.

3,000 companies and financial institutions are decarbonising their products and operations in line with science-based targets.

Reasons to be pessimistic

But in other respects, there are reasons to be pessimistic.

Russia’s illegal invasion of Ukraine has pushed up energy prices. Politicians under pressure from the rising cost of living have turned to fossil fuels.

Global emissions are projected to hit a record high in 2022. Coal emissions are up – in Europe by close to 7% and in India by 5% – setting a new global record for carbon dioxide emissions from coal alone of 15.1 GT (from all sources, we emit around 41 GT of greenhouse gases).

To be on track for 1.5 degrees, we need to halve global emissions by 2030. As Daniel Schrag says in the Economist’s COP briefing, “it’s so far from reality that it’s kind of absurd”.

According to the most recent report from the International Energy Agency (IEA) the use of coal is at all-time high levels. If we really want to reach the 1.5 degrees target we must put greater effort and money into the transition from coal to alternative sources of energy, such as wind and solar.

All the heavy users of coal, in terms of countries, have declared they want to become carbon neutral. But the gap between plans and actions is enormous. Of all countries that signed the Paris Agreement, no one has ambitious enough plans in place. Let alone acting accordingly. This is however, with the exception of one: Gambia.

So what about COP 27 itself?

At Cardano, we’re watching from afar. Outside the inner “bluezone”, COP is a jamboree. That’s ok – awareness raising has its place. But flying to Sharm El Sheikh – to be a bystander – is less compelling than a train ride to Paris or Glasgow.

When it comes to implementation, the evidence is mixed.

Earlier in 2022, the UK Climate Change Committee (CCC), an independent committee set up to advise the government, said that progress lags ambition. The CCC published a 600+ page report, with 327 recommendations, setting out what the government needs to do to get back on track.

To support the COP negotiations, the best thing the UK government could do is to implement the CCC’s recommendations – “talk is cheap”, literally and figuratively.

Similarly, the best thing companies can do is to decarbonise their products and operations, to ensure board-level accountability for climate change, publish TCFD reports, publish Taxonomy disclosures (the capital expenditure aligned with environmentally sustainable activities), decarbonise supply chains and invest in low carbon solutions.

Companies should address related environmental and social issues, such as tackling deforestation and accountability on water withdrawal, consumption and pollution, adopting and implementing the UN Guiding Principles on business and human rights, and ensuring transparency across operations, supply chains and political engagement.

For investors, it’s to decarbonise portfolios, and to use stewardship, co-filing and voting, as well as policy engagement, to advance sustainability objectives. Investors’ goal should be real-economy decarbonisation. We’ve written about how to maximise real-world sustainability impact here.

An inflection point

Undoubtedly, COP 27 provides us with an inflection point – a calendar entry for governments, companies and investors to reflect on their progress and further their commitments. Many new commitments agreed in Sharm El Sheikh will be meaningful.

We’ve had our eyes on a couple of such announcements – a new partnership to protect the world’s forests, governance to ensure proper supervisory mechanisms, and an agreement on ‘making good on promises’.

But after the launch comes accountability and implementation. And the only metric that matters is the level of GHG emissions in our atmosphere – a metric that’s still rising.

The Inevitable Policy Response (IPR), a research programme commissioned by the UN Principles for Responsible Investment, forecasts an acceleration of policy responses to climate change following what’s called the Global Stocktake.

The first stocktake got underway in Glasgow last November and will conclude at COP28 in 2023.

The stocktake will tell us that we’re on track for catastrophic climate change. We know this. But IPR expects the stocktake to force policy makers to act – a step change from what we’ve seen so far.

The policy response, IPR says, will be increasingly forceful, abrupt and disorderly. But it’s the best we can hope for.