What COP27 Means for Companies and Investors
Blog post
9 min read
November 21, 2022
- The agreement reached at the COP27 climate conference calls for transforming the financial system to deliver the trillions of dollars in clean energy investment annually that the low-carbon transition will demand.
- The conference underscored the need for action on corporate climate pledges, the critical importance of data and a series of initiatives to help developing countries cut emissions and adapt to climate change.
- Members of MSCI's climate research team will discuss top takeaways from COP27 for companies and investors — as well as what to expect from the COP15 biodiversity summit — at a virtual briefing on Nov. 21. Watch on demand here.
Cracking down on climate commitments
Companies and financial institutions must back up their climate commitments with actions and investments, the United Nations' High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities said in a report that aims "to prevent dishonest climate accounting." Among its recommendations:
- Net-zero pledges should contain interim targets measuring progress along a 1.5 degrees C pathway five years at a time, reaching net-zero by 2050 or sooner; targets should account for companies' complete Scope 1, 2 and 3 emissions.
- Net-zero pledges should include specific targets aimed at ending support for fossil fuels; companies and financial institutions should disclose their affiliations with trade associations.
- Companies may use high-integrity carbon credits to mitigate emissions beyond their value chain but cannot count such credits toward interim targets.
- Financial institutions should have a policy of not investing in or financing businesses linked to deforestation.
- Financial regulators should develop regulation and standards governing net-zero pledges and transition plans and disclosure, starting with companies, including private and state-owned enterprises and financial institutions.
Data for decision-making
The Net-Zero Data Public Utility (NZDPU), a central repository of climate-transition data, is expected to be up and running in the second half of 2023. The NZDPU will have four key goals:
- To be a trusted central source of verifiable data, with an initial focus on standardized data for greenhouse gas emissions across all emissions scopes
- To augment transparency and align with global regulatory frameworks and standards where possible
- To be open and available to the public at no charge
- To be designed to be part of the global climate action portal hosted by the United Nations Framework Convention on Climate Change
- The repository will incorporate a foundational layer of data from CDP, which collects climate data from nearly 20,000 companies and other disclosing entities.
- Data provider representatives on the committee include MSCI Inc., Bloomberg LP, London Stock Exchange Group plc, Moody's Investors Service, Morningstar Inc. and S&P Global Inc.
Carbon markets
U.S. Climate Envoy John Kerry unveiled a system of carbon credits designed to finance the clean-energy transition in developing economies.
- The Energy Transition Accelerator will aim to catalyze private sector investment to phase out coal plants and speed investment in renewable energy.
- The Global Carbon Trust will create standardized contracts for carbon credits, embed third-party monitoring and verification of project performance, and provide arbitration and compensation mechanisms for projects that fail to meet targets
- The African Carbon Markets Initiative aims to produce 300 million carbon credits annually by 2030 worth an estimated USD 6 billion that would be distributed among local communities.
- Credits for carbon captured by ocean and coastal ecosystems should safeguard nature, empower people, employ the best information and carbon accounting principles, operate contextually and locally and mobilize high-integrity capital.
Climate-related disclosure
CDP said it would use the climate-disclosure standard being developed by the International Sustainability Standards Board (ISSB) in its corporate environmental disclosure platform starting in 2024.
- The organizations said the decision by CDP would speed adoption of the ISSB standard, which is being finalized.
- The framework aims to support investors, regulators, multilateral institutions and other market participants by providing high quality, comparable and timely information for investment decisions in priority jurisdictions, which the ISSB said it aims to identify between now and this April.
Blended finance for the climate transition in less-developed economies
Turning project pipelines into investable opportunities will top the list of initiatives the Glasgow Financial Alliance for Net Zero (GFANZ) aims to pursue through its Africa network in 2023.
- GFANZ also said it would work "to reduce the cost of climate finance in Africa by better understanding what is needed on de-risking investments to crowd in private finance."
- The alliance said it would engage members "to understand risk drivers and real versus perceived risks" that hinder investment and co-develop solutions to mitigate risk and lower the cost of climate finance on the continent.
- The Just Energy Transition Partnership announced on Tuesday aims to mobilize public and private financing that includes USD 10 billion over a three-to-five-year period facilitated by The Bank of America Corporation, Citigroup Inc., Deutsche Bank AG, HSBC Holdings plc, Macquarie Group Limited, MUFG Bank Ltd. and Standard Chartered plc.
- A liquidity and sustainability facility that aims to lower the cost of borrowing for governments by increasing demand for their sovereign bonds
- Adoption of the global baseline for sustainability disclosures being developed by the ISSB
- A proposal for a sustainability sovereign debt hub for debt designed to lower the cost of capital for climate- and nature-resilient development in developing countries, support investments in adaptation and mitigation and make sovereign debt markets responsive to the underlying needs of countries facing exogenous, destabilizing shocks.
- Guarantees from multilateral development banks that lower the cost of borrowing by improving the issuer's debt profile
- The Alliance for Green Infrastructure, which is backed by the African Union and the African Development Bank, aims to "provide the requisite de-risking instruments" to mobilize private equity and debt financing for projects projected to spur USD 10 billion of investment.
Further Reading
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