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COP27 has started. But where do we stand since COP26 - what should we be expecting from COP27?

Overview

The 2022 United Nations Climate Change Conference, also known as COP27, is being held from 6 - 18 November 2022 in Sharm El Sheikh, Egypt. The United Nations Framework Convention on Climate Change (UNFCCC) has 197 parties, and the heads of state and government of all parties will attend the implementation summit on 7 and 8 November. The conference aims to bring countries together to take action towards achieving the world’s climate goals explained in the Paris Agreement and the Convention.


The main aim of the Paris Agreement is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. It also focuses on scaling up efforts to build resilient and decrease vulnerability to the adverse effects of climate change, uphold and promote regional and international cooperation.



One year since COP26… Have we achieved last year’s pledges?


Revisit and strengthen all countries’ 2030 emissions-reduction goals to align with the Paris Agreement’s goals.

24 out of 194 countries have updated their targets. The UK is one of the 24, and had a revised goal to cut emissions 68% below 2010 levels by 2030, with policies ready for implementation. However, the recent change in governance has put them on hold, and a legal challenge to the UK Government’s approach has added pressure to improve the plans that underlie it.


46 countries promised to phase out unabated domestic coal. 30 countries promised to end new overseas finance of fossil fuels before 2023 and invest in clean energy.

Renewable energy installations hit a record of 295 gigawatts (GW) of green generating capacity in 2021, and are expected to rise 8% by the end of 2022. However, Russia terminating their gas supplies, China’s constructing new coal mines, and UK’s announcement of North Sea oil and gas licenses, are feeding into fossil fuel consumption and production.


Developed nations committed to invest $100 billion a year to support developing countries. Countries will also double funding for adaptation to $40 billion annually. 70+ organizations committed to ensure all citizens have equitable access to climate adaptation finance.

More funding is needed to fulfill the $100 billion commitment now, as well as the pledge to reach $40 billion of adaptation finance in future years. Finance for adaptation is accounted for a total of $28.6 billion.


74 countries promised to reach Net Zero emissions by mid-century. More than 600 companies also set Net Zero emissions targets in the run-up to COP26.

7 additional countries committed to reach Net Zero and all G20 countries, except Mexico, now have a net-zero target. Now, 1400 companies had committed to Net Zero. Overall, commitments are shown but actions need to be made to achieve the goals.


Achieve Net Zero emissions in the financial sector by mid-century.

The Glasgow Financial Alliance for Net Zero (GFANZ) was formed in April 2021 and has grown to 500+ members. Across the financial sector, the commitments made vary vastly in quality and ambition, and many are struggling to meet the requirements within the alliance.


103 countries pledged to collectively reduce methane emissions 30% below 2020 levels by 2030.

19 additional countries formally joined the Global Methane Pledge. Limiting methane emissions was a major highlight of US-China cooperation at COP26, but tensions between the two parties regarding Taiwan have caused China to halt climate cooperation.


140+ countries pledged to halt deforestation and land degradation by 2030.

4 new countries joined the Glasgow Leaders’ Declaration on Forests and Land Use, but G20 countries are absent. The 12 governments that pledged $12 billion at COP26 are expected to report on their progress at COP27.


1,000+ cities and local governments pledged to reach Net Zero by the 2040s.

Only one-third of cities that have been a member for more than a year are reporting progress; 84% are taking action. Moreover, information on benchmarks and, more importantly, reduction in emission levels are generally inadequate.


100+ countries, cities, states, and major businesses committed to ending sales of internal combustion engines worldwide by 2040.

As of June 2022, 18 countries had pledged to eliminate internal combustion light-duty vehicles between 2030 and 2050; 9 pledged a certain scale of elimination for combustion engine trucks; and 11 had pledged to zero-emission buses. The US has also recently passed legislation that indicated federal commitment to zero-emission vehicles.


Expectations of COP27


Commitment AND implementation, not just commitment

The most important question of all: is preventing global warming beyond 1.5 degrees Celsius above pre-industrial temperatures still attainable? With only 24 countries having updated their Net Zero plans, COP27 needs to show progress in implementing and/or encouraging policies and frameworks which will deliver sustainability, rather than just a demonstration of commitment to goals without actionable and impactful strategies.


“Loss and Damage”

Perhaps because COP27 is being in Egypt, it is expected that the conference will focus on climate finance, adaptation ambition, and “loss and damage”. As a new report from the UN Environment Programme (UNEP) shows more than US$300 billion annually will be required to tackle climate crises, the increased vulnerability of developing countries and rural areas will be expected to be a major debate. Hopefully, COP27 will structure targets and policies to encourage climate financing towards adaptation outcomes which will ultimately lead to enhanced resilience. The impacts of loss and damage (costs and consequences of climate crisis which cannot be combated by people’s adaptability using the existing preventive measures) should be minimized as much as possible, especially for emerging economies.


Furthermore, members of the convention are expected to assess progress toward the goal of channelling $100 billion per year to developing countries dealing with the climate crisis, a pledge made in 2009 at COP15 in Copenhagen. They will also set a financial goal for after 2025. Multiple bilateral and private-sector agreements are also likely to be announced to improve climate action implementation and increase climate finance to the trillions.


Put a stop to fossil fuel

At COP26, it was agreed for the first time amongst all parties to “phase down” coal production and consumption. However, political disputes between Russia and EU countries have led to many EU countries having to re-open their coal plants’ productions in order to combat energy shortage. At the same time, China, Vietnam, and Indonesia are also planning to increase their coal production. COP27 will definitely discuss how to manage the current situation and how countries can fully commit to putting a stop to fossil fuel production.


What does this mean for SMEs?


Cheaper energy costs

Commitments made by countries, states, and corporations will only accelerate the adoption of renewable energy sources. This will automatically bring benefits to SMEs; ultimately cheaper and more accessible renewables, and bringing new renewables onstream is quicker than developing new oil and gas fields for example. This is vital especially now, as SMEs are suffering from soaring energy bills and recession – this need to be a temporary state, not a chronic one. Furthermore, as more major manufacturers start committing and acting towards their Net Zero journeys, SMEs who are relying on any major manufacturers as a part of their value chain will benefit from decreased emissions.


Need for climate resilient organizational structure

Although commitments have been made by many stakeholders globally, results right now are not promising. SMEs should start to think about building resilience to extreme weathers as water levels are expected to rise at an exponential rate. Extreme weather will affect numerous suppliers’ businesses and SMEs should be aware of any potential impacts.


Implementation of Net Zero strategies

There will be increased pressure on SMEs especially in the UK to strategically plan their own Net Zero targets and use lower carbon value chains to deliver their products and services. This is because the UK has committed to the UN’s race to zero campaign, meaning UK based companies, especially larger listed firms, are expected to incorporate sustainability principles. Since SMEs are interconnected with many larger corporates and are a major part of their supply chain, they will also be strongly encouraged and pressured to do the same.


Increasing customer demand of sustainable goods and services

COP27’s media presence is extremely significant, and can be assumed to influence consumer demands in the market. Increased overall awareness and education around sustainable consumption will hopefully increase the consumer demands for sustainable goods and services. According to a study conducted by Enterprise Research Centre, “customer demand for low-carbon products/services” is the most important driver of both technological and organizational Net zero practices in SMEs (Table 1). As could be seen from Table 1, customer demand is positively associated with higher probability of all Net Zero practices (except from pollution filtering). This study also shows that customer demand increases the chances to switch to renewable energy by 7.2% points. Therefore, once consumer demand increases due to COP27, SMEs will be driven to implement sustainable practices and integrate green products within their brands.



Table 1: Effects of Net Zero drivers on the probability of Net Zero practices


Conclusion

The biggest challenge for this year’s conference is to reinforce policies which will ensure countries, states, governments, and corporations to collaboratively achieve the 1.5 degrees Celsius mark. Success can only happen when all stakeholders not only express their commitments, but to show real progress on their change in emissions, investments, and energy sources. It is also important for developed countries to recognise the increased burden developing countries are carrying and to support their decarbonisation journey.


Citations

https://media.un.org/en/asset/k1l/k1lzvjbypv

https://www.wri.org/insights/cop26-climate-pledges-tracking-progress

https://www.businessgrowthhub.com/blogs/2021/12/what-does-the-outcome-of-cop26-mean-for-smes

https://www.lbpresearch.ac.uk/net-zero-and-smes-in-a-post-cop26-world/#_ftn2

https://www.enterpriseresearch.ac.uk/wp-content/uploads/2021/06/ERC-ResPap95-Drivers-and-Performance-Outcomes-of-Net-Zero-practices-KesidouRi.pdf

https://www.unep.org/news-and-stories/story/what-expect-years-un-climate-conference-cop27