Over the weekend COP27 began and is taking place during a period of significant geopolitical turmoil and market volatility. Ideally, COP27 is meant to generate continued momentum behind climate change targets and collaboration. However, in this macro context: What are investors’ expectations of the summit? And how are they themselves thinking about the implications on their climate portfolios and targets?

Daniel Bressler and Niceasia Mc Perry from NatWest’s Climate & ESG Capital Markets team put these and other questions to a panel of leading sustainable investors during a webinar in our “What ESG investors want” series.

Here are some of the key points raised during the discussion, which included Gilles Dauphine from AmundiNick Spooner from Robeco and Marianne Gut from SEB.

Investors are maintaining their climate focus amidst the volatile macro backdrop:

  • War on Ukraine: the Russian war on Ukraine has an impact on climate policies. In parts of the world, we have seen a positive response from a climatic perspective, such as the acceleration of climate policies in the EU. This filters down to investors to engage with issuers around how they are responding to these geopolitical risks and the ratcheting of climate policies.
  • Energy crisis: the energy crisis has further sharpened investors’ determination to tackle climate issues through investments and by working closely with issuers and other portfolio managers.

Investors could benefit from more clarity on the steps governments will take on delivering on their climate commitments:

  • One of the strong outcomes from COP26 in Glasgow was seen to be the frequency of the ratcheting mechanism, which means that some countries will now update their Nationally Determined Contributions (NDCs) more often and translate them into ‘real world’ policies. Those policies are really important in terms of giving some certainty to investors around how to allocate capital efficiently.
  • Investors should keep a close eye on policy packages along with pledges as the former will shape the markets and will determine investment risks and opportunities. It is seen as being essential that governments bring clarity on the actions they will take and policies they will implement to achieve their climate targets.
  • It was noted that there are still a number of countries that have to clarify their net-zero pledges and turn them into measurable targets, including information on scope, amount of CO2 removal and use of carbon offsets. This should provide investors with heightened visibility on the real level of ambition behind the headline reduction targets.

Selected investor expectations for COP27:

The governments at COP27 need to agree on how to finance the required global transformation to reach net-zero emissions by 2050. This transformation will cost around $9.2 trillion in annual average spending on physical assets, meaning $3.5 trillion more than today.

It was also noted that governments should continue to set the stage for clear regulatory and policy frameworks while providing appropriate incentives to attract the required public and private investments needed to meet the climate change challenge.

Another major topic for the summit in Egypt will be the continued talks around Loss and Damage. It’s incredibly important for more capital to be mobilised and transferred to developing countries, and discussions around Loss and Damage may help to catalyse this. However, the COP27 members need to make sure that this is new/additional capital.

Implications for green finance from COP27 outcomes:

  • It was argued that the financial sector must continue playing an active role to support the transformation to a net zero economy at scale. 
  • In this regard, financial institutions are seen to have two roles: firstly, to contribute to the financing of the solutions we need to decarbonize the economy, such as renewables, energy efficiency technologies, green transportation, to name just a few. And, secondly, to influence companies to engage in their transition, through our stewardship activities. 
  • A major topic for the summit in Egypt will be the continued talks around Loss and Damage. It’s incredibly important for more capital to be mobilised and transferred to developing countries, and discussions around Loss and Damage may help to catalyse this. However, the COP27 members need to make sure that this is new/additional capital. 
  • Even though the financial sector cannot be a substitute for policy makers, it has a clear role to play in closing this climate financing gap while encouraging sustainable best practices at issuer level. Public capital has a significant role to play, but it will only be truly impactful if partnered with private investment

Watch the full webinar

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