COP27 Recap and Insights
Align team and community,
As the year comes to a close, I’d like to share a recap of COP27, the UN Climate negotiations that took place in Egypt in November.
The most significant outcome was an agreement on loss and damage, a historical feat 30 years in the making. “Loss and damage” refers to harm resulting from climate change including sudden-onset events, like hurricanes and floods, as well as slow-onset processes, such as sea level rise and desertification. Developing countries including Least Developed Countries and island states have contributed little to historical emissions yet they are and will continue to be the most impacted by loss and damage. In other words, those least responsible for climate change are the most vulnerable. An ongoing discussion within the climate negotiations has been loss and damage finance: whether and how to hold countries most responsible for historical emissions (US and Europe) liable for the costs of loss and damage in developing countries. It can be thought of as climate reparations and is a quintessential case of climate justice.
Historical Context
Island states first signaled the importance of loss and damage in 1991. At COP20 in 2014, I was part of the Costa Rican negotiating team and tasked with tracking the negotiations on loss and damage. We didn’t come to an agreement that year and progress since has been dismally slow. Last year in Glasgow, the proposal to establish a Loss and Damage Facility gained steam – but at the eleventh hour, the US threw a wrench in the negotiations.
The US and even Europe have balked year after year on loss and damage finance because:
a) They are fearful of being held liable for a hefty bill. They correctly recognize that, because they’ve allowed their high emissions to continue for so long, the costs of loss and damage in the years to come are gargantuan.
b) They don’t see how they would benefit. Whereas mitigation funding reduces climate change for all countries, developed countries see little direct benefit to themselves in helping impoverished populations overcome disasters (which is of course a short-sighted position in underestimating the interconnected nature of the global economy).
c) They want China and other up-and-coming high emitters to contribute to the fund. That position overlooks that China has only recently become a high emitter and its historical contributions are fairly low. The US and Europe are still responsible for the lion’s share of historical emissions.
The Breakthrough (yet Nebulous) Agreement
At COP27, countries finally agreed to establish a loss and damage fund. Reaching an agreement is monumental, but the details are vague: countries did not agree to a target fund size, a launch date, which countries should contribute, or which should benefit. The hazy outlook left some developing countries increasingly frustrated and skeptical of the eventual magnitude and timing of the support. The US and Europe pushed to include a clause in the text stating that nations cannot be held legally liable for payments, alleviating one of their primary concerns but removing some teeth from the process. The rest is yet to be decided. The US and Europe are pushing for China to contribute funding and to be excluded from benefits. They’re also pushing for a broad interpretation of financing, which would include insurance programs rather than grants or concessionary financing. A committee of 24 countries will seek to provide clarity on the fund structure by COP28.
Mitigation & Adaptation Finance Also Falls Short
The first COP I attended was in 2009: the infamous Copenhagen convening that began with high hopes and ended with weak text and widely criticized deal making behind closed doors. There at COP15, developed countries declared that by 2020, they would channel $100bn every year to developing countries to fund mitigation and adaptation (separate from loss and damage). In 2022, developed countries’ support still falls short of that $100bn annual promise. Furthermore, of the capital transfer they have mustered, much has been in the form of loans rather than grants, further indebting developing nations, and through private finance rather than public. And lastly, much of the capital has been spent on mitigation (addressing the problem developed countries are largely responsible for), rather than adaptation (the problem disproportionately burdening developing countries). After years of unmet promises on this funding, it’s no wonder developing countries are skeptical about the timing and structure of the eventual loss and damage fund.
While little was achieved in holding developed nations accountable to their commitment, there was a collective call for multilateral institutions to better align their policies towards climate change, including the World Bank.
Looking Ahead: Global Stocktake and Biodiversity COP
Next year at COP28 will mark the first “global stocktake” where all countries will come with declarations of their emissions reductions and adaptation measures to date in order to take stock of the collective progress toward implementation of the Paris Agreement. Many hope that public declaration will spur countries and nonstate actors into more proactivity over the coming twelve months. And the Loss and Damage Committee is expected to return with a proposal on the size, structure, and participants of the Loss and Damage Fund.
While COP27 marked some forward momentum, another important COP is currently underway: COP15, not of the UN Convention on Climate Change, but of the UN Convention on Biodiversity, held December 7th – 19th in Montreal. Nearly every nation in the world is a signatory, except for the Vatican and the US – Republican lawmakers have blocked ratification since the 1990s. Protecting biodiversity is critically urgent as an ever-increasing rate of extinction threatens the stability of ecosystems, jeopardizes human industries like agriculture and fishing, and moves us eerily close to climate tipping points. While many have yet to recognize the importance of biodiversity, the World Economic Forum labeled it one of the top three global risks (after climate change and extreme weather). And it’s become dire: “The world’s 7.6 billion people represent just 0.01% of all living things by weight, but humanity has caused the loss of 83% of all wild mammals and half of all plants” (World Economic Forum). There’s hope that at COP15 delegates will reach a landmark treaty on biodiversity – akin to the Paris Agreement for climate – that sets out a plan for conservation through 2050. It’s expected to include “30 by 30,” a pledge to protect 30% of land and 30% of oceans by 2030.
Implications for Align and Impact Investors
The agreement on loss and damage underscores the growing recognition of climate injustice at a global scale. Align will continue incorporating climate justice in our investment theses and proactively expanding our climate work beyond mitigation to include adaptation and resilience, particularly in emerging markets. As for biodiversity, we’re excited to continue seeking out both land-based and ocean-based conservation strategies in emerging markets in 2023.
Stay tuned for updates from COP15 and spread the word that biodiversity is key to our survival!