COP27, the annual UN climate conference, took place last year in Sharm el-Sheikh, Egypt. It represented what is likely to be the final opportunity to take global collective action on the climate crisis and achieve net zero emissions across the economy in line with the Paris Agreement. The PRI worked closely with partners in the Glasgow Finance Sector Alliance for Net Zero (GFANZ) and other networks to enable all PRI signatories to walk the talk on humanity’s most pressing challenge by making a net zero carbon emissions economy a reality.
Five key themes
The strategic location of COP27 and COP28, to be held this year in the United Arab Emirates (UAE), is expected to galvanise regional ambition, action, and collaboration in the Middle East and Africa. The PRI prioritised the need for bold action at COP27, focusing on raising government and investor ambition to take swift and meaningful steps towards a net-zero economy.
1. Closing the commitment gap
The 2021 NDC Synthesis Report showed that countries are far from the level of ambition needed to achieve the Paris Agreement goals. The latest findings by the IPCC show that unless changed quickly, increase in global greenhouse gas emissions may lead to a temperature rise of about 2.7C by the end of the century. All countries need to step up on reducing emissions. G20 middle-income countries and high-income countries are critical to closing the emissions gap.
- The pace of decarbonisation is critical. Only with concerted, near-term efforts from all countries will we retain the reasonable chance of limiting global warming in line with the goals of the Paris Agreement.
- In response, a decision was taken at COP26 requiring all countries to submit updated NDCs at COP27, in advance of the first global stocktake in 2023, one of the centrepieces of the Paris Agreement’s increased ambition mechanism.
2. Addressing the energy “trilemma”
The concurrent energy security, affordability, and climate crises necessitate accelerating the structural shift to net-zero emissions.
- Regional and international energy policy to redouble efforts on an accelerated transition will be crucial. Developed countries, and the EU and UK, must ensure that decisions made by policymakers now do not delay the longer-term adjustments that are needed to ensure energy markets and infrastructure align with the Paris Agreement and reach net-zero emissions, by 2050 at the latest.
3. Mobilising climate finance and shifting from pledges to implementation
Global climate financing is still insufficient, and unevenly distributed (with the MENA region among the lowest recipients). Glasgow acknowledged the failure to deliver on the $100 billion pledge and “urged” countries to double financing for adaptation.
- The process to set the new collective quantified goal on climate finance (NCQG) has been set in motion this year with technical expert dialogues on the post-2025 goal (where private sector actors will be increasingly called to action).
- Actors from both public and private finance will be expected to demonstrate action and progress – shifting public and private financial flows, advancing investors’ duty to decrease financed emission and finance emissions reduction, fulfilling near term targets and accountability, reporting and disclosing of progress, and ensuring the comparability and interoperability of disclosures.
4. Joining the dots between climate, nature and biodiversity
The 2nd part of the UN Biodiversity Conference COP15 has been confirmed to take place in Montreal, Canada in December 2022, to negotiate and adopt a post-2020 global biodiversity framework. The framework is expected to be critical to halt and reverse nature loss, putting nature on a path for recovery by 2030, with a vision of living in harmony with nature by 2050. It is expected to strengthen existing Paris Agreement goals on restoring carbon sinks (both for climate mitigation and resilience) and scaling nature-based solutions, with co-benefits for biodiversity. An integrated and coherent approach, which includes Indigenous leadership and guidance, is needed to tackle the joint climate and nature crises, ensuring actions do not undermine each other. COP27 represents the opportunity to raise government and investor ambition in relation to the climate-nature nexus.
5. Inclusion, solidarity, and global partnerships for a just transition
Critical topics of discussion will be to amplify the voices of and build resilience for frontline and vulnerable communities (including finance for adaptation and resilience); address the impacts of climate physical risks; scale finance towards loss and damage; and advance Just Energy Transition Partnerships with other emerging fossil-fuel reliant economies, while ensuring social safeguards for climate solutions.
How the PRI responded to COP27
The PRI’s work focused on convening government leaders and investors on ambitious, actionable climate targets in line with the 1.5 degree warming goals agreed upon in the Paris Agreement.
POLICY ASKS OF GOVERNMENTS AND MULTILATERALS
Addressing climate change through an accelerated and just net zero transition offers multiple co-benefits: strengthening energy security; protecting consumers and businesses against cost-of-living crises and future price spikes in oil and gas; and achieving sustainable development objectives, like the Sustainable Development Goals (SDGs). It is time to not just redouble but supercharge global efforts towards these ends.
Effective Paris-aligned climate policies, and their full implementation, are essential for accelerating and scaling up private capital flows needed for a climate resilient, net zero transition. We need to advance implementation, credibility, transparency, accountability, and international cooperation and partnership.
In this regard, PRI recommended the following policy actions:
1. Deliver enhanced NDCs with stronger ambition and details for implementation
Ensuring that 2030 targets are aligned with the global goal of limiting temperature rise to 1.5°C. Countries without 1.5°C-aligned climate emissions pledges need to revise and strengthen 2030 targets by COP27.
2. Implement long-term domestic policies that enable the just transition towards a net zero emissions economy and mobilise finance for the transition
Key policy measures include:
- Reconciling energy security and net zero commitments: Ensure that decisions made today, particularly short-term measures of using available energy resources to diversify energy supply, do not create lock-in of future emissions and new rounds of stranded assets. These decisions should not derail the longer-term adjustments needed for infrastructure and the energy market. More detailed recommendations can be found in PRI's climate policy brief for the UK and EU.
A well-designed carbon price: carbon pricing instruments, as part of a comprehensive policy mix, can provide broad-based incentive for decarbonisation. Key design principles include (more detailed analysis can be found in Net-Zero Asset Owner Alliance Position Paper on Governmental Carbon Pricing):
- Ensure rising price collars and broad scope of sectoral coverage;
- Deliver a just transition through revenue recycling mechanisms to minimise negative distributional impacts and complementary policies such as re-skilling;
- Provide price predictability such as rising carbon price floors and ceilings, or corridors, to avoid excessive price volatility and provide a predictable increase over time;
- Minimise competitive distortions and avoid carbon leakage through appropriate and targeted protective measures for trade-exposed emissions-intensive firms, while still maintaining the incentive to abate.
- Promote further international cooperation on carbon pricing to raise ambition and meet the Paris Agreement goals, including through ETS linking, knowledge transfer, or international “climate clubs”.
- Implement the full and equitable phaseout of fossil fuel subsidies, including the elimination of all subsidies for fossil fuel exploration and coal production, and an end to public financing of fossil fuels and related infrastructure, in line with credible 1.5°C pathways.
- Progress on commitments associated with the Glasgow Leaders Declaration, to halt (by 2025) and reverse (by 2030) forest loss and land degradation, while delivering sustainable development and promoting an inclusive rural transformation. In particular, deliver on Actions 5 and 6 to significantly increase public and private financial flows towards sustainable agriculture and forestry, forest conservation and restoration, and support for Indigenous Peoples and local communities.
- Accelerate large-scale reforestation and afforestation activities, through incentives for carbon sequestration; and ensure additionality, permanence and accounting of voluntary carbon markets, that do not undermine human rights or harm biodiversity and that promote nature-based solutions.
3. Continue to reform existing finance and investment policy frameworks so as to effectively re-orient and transform the financial system in a way that aligns and directs investment towards net-zero goals, ensuring long-term policy clarity and direction. Priority measures include
- Advance national/regional sustainable finance strategies that encourage and enable the low-carbon transition and the delivery of the SDGs for the whole economy; see PRI’s Legal Framework for Impact (LFI) recommendations for further details.
- Codify active ownership for investors to support corporate transitions towards net zero, clarify investor duties to facilitate all investors to pursue sustainability goals
- Mandate comparable, interoperable, and decision-useful climate-related financial disclosures for companies and financial institutions aligned with international standards.
- Develop or enhance taxonomies of sustainable economic activities, defining clear, common and interoperable criteria to classify projects or investments as green or sustainable.
4. Address urgent needs of emerging markets for adaptation and resilience, domestic and international just transition, and scaling blended finance
- Developed countries should work on mobilising the promised climate finance required to unlock higher levels of ambition in developing countries’ NDCs and to support and strengthen their capacities for adaptation and resilience against worsening climate impacts.
- Advance co-created Just Energy Transition Partnerships that finance a just transition based on developing countries’ needs, ensuring a just transition away from fossil fuels and towards clean energy for both people and climate.
- Scale-up blended finance vehicles targeting investments in emerging markets and Least Developed Countries for the transition of the real-economy.
5. Enhance the necessary institutional arrangements and capacity to advance monitoring, reporting, review and enforcement of effective policy implementation. While governments are organised in different ways, common elements could include
Scale up country-level institutional capacity assessments and strengthen institutional arrangements to back national decarbonisation objectives (long term target and interim milestones/carbon budgets), including on the delivery of:
- Key policies that enable the implementation and fulfilment of stated climate goals;
- Systems and structures for consulting affected communities in policy design and implementation, accounting for the need for greater devolution of decision-making in specific contexts.
- Support public administrators through adequate resourcing and training of personnel, including those responsible for strategy and implementation on policy related to climate mitigation and emission reduction, adaptation measures, and just transition mechanisms.
Dedicate independent climate change bodies with mandates to steer and coordinate climate policy, as well as the ability to monitor, evaluate and advise on community climate policy progress. Institutions should be empowered to carry out their responsibilities to:
- Track and inform policymakers about the necessary and actual pace of progress on climate action;
- Support policymaking and investment decisions by providing targeted information;
- Improve transparency in communications with the public and with the international community.
The private finance sector plays a vital role in closing the financing gap and turning commitments into climate action for both industrialized countries and emerging markets. There is clear leadership from finance sector actors, but more action is needed.
Ways for investors to take action
1. Develop an Investor Climate Action Plan & demonstrate progress
The PRI works closely with investors to encourage them to put in place comprehensive climate action plans, no matter what stage they are at in their own climate journey. The Investor Climate Action Plans Expectations Ladder and Guidance document supports investors to put action plans in place and move towards net zero. This includes setting strong science-based net zero commitments with near-term accountability; engaging in stewardship and policy engagement to ensure impacts in the real economy impact; and integrating systemic risks of deforestation and just transition throughout their climate strategy.
2. Commit to net zero and join the Race to Zero (and GFANZ) via one of the following net zero alliances
|Net Zero initiative|
3. Sign the Global Investor Statement on the Climate Crisis & engage in policy discussions
- An enabling policy environment is key to achieve net zero goals. See here for PRI’s work on climate policy including policy asks of governments.
- Sign the Global Investor Statement to Governments on the Climate Crisis.
4. Get familiar with guidance and collaboration opportunities
- For investors getting started on climate action, see here for PRI’s introductory guides, case studies, and asset class specific resources.
Recent PRI climate policy publications include:
- The Investor Climate Action Plans (ICAP) Guidance offers a range of in-depth guidance materials as well as a one-stop-shop for opportunities for collaboration on climate.
- The Legal Framework for Impact (LFI) also shows where and how investors can already act, and pinpoints areas for reforms that need to be presented to policymakers – including through the COP, where guidance will reach all jurisdictions. Further engagement with national government on stronger climate targets, NDCs and net zero transition policies also presents a great opportunity for investors to take advantage of the global attention on climate action and potentially strengthen the negotiation position of forward-looking countries climate advocates. These would have to take place by September or October this year at the latest to ensure the largest impact.
5. Participate in COP27
The PRI ran a number of webinars and online roundtables with partners around the world, providing practical insights into how investors can operationalise net zero and take action towards COP27.
Additional resources below from different programmes which may be of interest. You can also access additional climate change resources on the PRI website
- The second progress report of the UN-convened Net-Zero Asset Owner Alliance. Advancing delivery on decarbonisation targets
- Net-Zero Asset Owner Alliance calls on policymakers to support scaling blended finance
- 2022 Global Investor Statement to Governments on the Climate Crisis
- Closing the loop: Responsible investment and the circular economy
- Still Flying Blind: The Absence of Climate Risk in Financial Reporting