What happened at COP27 and why it matters?

Investments team
December 2022

Egypt hosted this year’s annual climate conference, or ‘COP’. COP27 brought world leaders and delegates together to discuss climate change and the pathway to net zero – where the amount of greenhouse gasses going into the atmosphere is balanced by those taken out.

With time running out to stop a climate crisis from happening, some positive steps were made at COP27. Unfortunately, it also saw some delegates trying to backtrack on promises made at previous COPs and there were certainly some parts of COP27 that were disappointing. These include:

  • No firm agreement on stopping coal use or reducing wider fossil fuel use

COP27 kept to the agreement made at COP26 in Autumn 2021, to reduce or ‘phase down’ the use of coal rather than agreeing to stop it or ‘phase out’ altogether. A call to add all the other harmful fossil fuels to the ‘phase down’ list also failed. 

  • New language on “low-emissions energy” 

The final agreement saw mention of “low-emissions energy”. There are worries that this might allow countries dependent on fossil fuels to include energy from natural gas, for example, which has lower emissions than coal or oil but isn’t ‘low emissions’ like solar, wind or nuclear energy. 

Despite the disappointments, there was also some hope, such as:

  • History being made as a “loss and damage” fund was created

Countries most affected by climate change won an important battle in getting agreement for a loss and damage fund to be established. This would provide funds to help them recover from climate-related damage and would be mostly funded by developed countries and probably some emerging economies like China, which have used fossil fuels for decades to boost their economic growth.

  • Plans for a just transition and human rights protection

We looked at why it’s important to make sure that the path to net zero is fair and includes everyone in our recent article on Just Zero. At COP27, a new work program on Just Transition was announced. The final agreement also included the human right to have “a clean, healthy and sustainable environment”. 

  • Progress on nature-based solutions

Nature-based solutions made it into the final agreement for the first time at COP27, showing how important oceans, soil and forests are in soaking up carbon. 

  • 1.5⁰C promise repeated

Worries about whether we can limit global warming to 1.5 degrees, led to suggestions that the target be dropped. However, global leaders meeting at the G20 summit that took place while COP27 was happening, stuck to this important ambition. That means that the world is still trying to meet that limit and to stay on the path to reaching net zero by 2050.

Why it matters? 

Many investors are keen to understand how their pensions and investments can help meet net zero targets. 

While it’s disappointing to see the slow progress on reducing emissions and COP27 not tackling fossil fuel use more strongly, we can see that world leaders and economies are still committed to reaching net zero. This means that governments and businesses across the US, Europe and the UK will carry on with their plans to reduce emissions. 

Pensions are invested in companies and these commitments and plans to move to net zero, and the steps companies take to adapt, will affect how they operate and how they perform. As governments create new rules and regulations to meet their own net-zero targets, companies that don’t follow the rules may become unpopular with customers and investors and face fines from regulators. These changes will bring challenges and opportunities.

A pension is a long-term investment. The retirement benefit(s) you receive from your pension will depend on a number of factors, including the value of your plan when you decide to take your benefit(s) which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.