Implementation COP or credibility flop? Investor reflections on first week of COP27

Investors hail discussions on critical climate topics, but concerns remain over logistical challenges and turnout.

Close to 35,000 people flocked to Sharm-El-Sheikh for COP27 for an event dubbed ‘the implementation COP’, despite the subdued build up to this year’s COP compared with its predecessor in Glasgow.

But with the opening week – which included finance day – now ending, that subdued feeling has turned to disappointment for some. Jeremy Lawson, chief economist and head of the abdrn Research Institute, said: “It was hard not be left with the impression that these meetings are proving a missed opportunity, that the so-called implementation COP will be more a credibility gap COP.” 

But this is not the only view on COP27, with reports that investors have been digging into blended finance, the just transition and adaptation financing in conversations at the conference. 

As expected, finance from developed market governments for ‘loss and damage’ caused by climate change and extreme weather events has been high on the agenda. 

Nicola Day, deputy head of Rathbone Greenbank Investments, explained that she tried to attend an event on the topic, but the room was “brimming over” – a demonstration, she said, of the focus on the topic from many negotiators and delegates.

“Unless loss and damage is addressed and supported by governments, developing countries will not have the stable architecture to set up climate projects,” Day said. 

Another attendee who expected loss and damage to be a major focus was Rhian-Mari Thomas, CEO of the Green Finance Institute. But she also revealed that conversations with both the prime minister of Barbados and the head of the World Trade Organisation raised another issue not being discussed nearly as much: big legislative packages such as the US Inflation Reduction Act and the EU Green New Deal risk concentrating transition benefits – such as electric vehicle or solar panel manufacturing – in the global north, excluding the global south from economic and trade opportunities.

Blended finance also sat close to the top of the agenda for Amy Hepburn, CEO of the Investor Leadership Network (ILN), who regards it as the unofficial theme of COP27.  

Michael Marks, head of investment stewardship at LGIM, said that his discussions on blended finance had centred around how to create a level playing field for finance in emerging and developed markets, both through de-risking and establishing structures. Private capital should be able to fund a green project in an emerging market and a developing one equally, he said. “I’m reticent to say I could see it coming to fruition imminently, but there is a growing desire.”

Rick Lacaille, global head of ESG at State Street, said his conversations had revolved around the pros and cons of a vertical or horizontal approach to blended finance.  

“Vertical refers to structures in which MDBs [multilateral development banks] take a slice of each part of the financing from the highest to the lowest risk in parallel with the private sector, while horizontal would see public money being used to insulate private money from risk.”  

Lacaille said preferences tended towards horizontal, because MDBs have a fixed amount of capital, and if it is used to take the risks that the private sector is less equipped to take, “it will result in proportionately more private sector money being deployed”.   

The risk with the vertical approach is that “at least part of the money deployed by MDBs is competing directly and unnecessarily with what private capital can do itself”.

Of particular interest to investors in the blended finance space was the just energy transition partnership (JETP) with South Africa.   

Announced last year by a coalition of governments, JETP aims to support South Africa’s decarbonisation efforts. At the time, the coalition committed to mobilising an initial commitment of $8.5 billion for the first phase, through various mechanisms including grants, concessional loans and investments and risk sharing instruments, including from the private sector.

A more detailed investment plan was launched during COP27, with three priority areas for finance: the energy sector, electric vehicles and green hydrogen.  

Sean Kidney, CEO of the Climate Bonds Initiative, said that the JETP was “surprisingly good, much better than I expected it to be”, and he looked forward to the forthcoming Indonesian equivalent.

The just transition has been a big topic at COP27 too. Rose Easton, the Principles for Responsible Investment’s (PRI) senior director for global signatory relations, said: “The loudest message – from both African and international investors – is that there needs to be a just transition.”

Other big topics on investors’ minds surrounded the need for MDB reform, the potential of green hydrogen and the importance of nature.  

Chandra Gopinathan, senior investment manager for sustainability at Railpen, said he had noticed conversations on the topic of adaptation, but a tangible pipeline of investable projects was still lacking. abrdn’s head of sustainability insights and climate strategy, Eva Cairns, pointed to the launch of the Sharm-El-Sheikh Adaptation Agenda, which aims to rally global action around adaptation outcomes.

She said that in the aftermath of COP27 “of course we need to still focus on transition and net zero, but adaptation solutions need greater focus – what frameworks and data do we need”?

However, not every investor was positive about events, including abdrn’s Lawson. While Lawson welcomed the “interesting discussions” held around blended finance, he said there was a lack of concrete progress.   

“Nobody should be under any illusion that the world is on a credible pathway to net zero by 2050, or even 2070.”

Cairns agreed: “Countries were asked to come to COP27 and update their NDCs to align with 1.5 degrees. However, no one seems to be talking about the fact that just 24 have, with marginally increased ambitions. For the finance sector to truly get to net zero, incentives from policymakers have to align.”

Did turnout match COP26?  

With a huge turnout for COP26 in Glasgow last year, all eyes were on whether the financial sector would show up in the same numbers in Sharm El-Sheikh.

There were mixed reviews on attendance. Evan Siddall, CEO of the Alberta Investment Management Corporation, said he felt that there was less private sector presence, although the private sector was “still prevalent”. Siddall said he had been speaking to Mark Carney, the UN special envoy on climate action and finance, who noted “you can’t mobilise everyone every year” but said he could sense excitement for Dubai next year.  

However, State Street’s Lacaille said there could even be a bigger private sector presence than at Glasgow, while Railpen’s Gopinathan said that the “investor presence was there” in Sharm El-Sheikh.

ILN’s Hepburn noted that Glasgow felt like the first time financial institutions “were invited to the table”. This year, she said, it feels like financial institutions have come with raised expectations of governments. “It’s like they’re saying, ‘you invited us, we’re clear on what we need from you,’” she said.  

LGIM’s Marks said that he would describe the investor presence as different rather than reduced. While COP26 saw the presence of many CEOs, most investors at COP26 are “the people who are doing the work on climate change”.

Other investors noticed the shift in tone – Rathbones’ Day said that she was “dreading” the idea of new announcements and pledges, since “at this point we just want mobilisation and action”. This was echoed by Hepburn, who said that the conversations this year “are very technical and practical”.  

“Every five seconds there were huge announcements at Glasgow; this year there are fewer headlines, but the conversations financial institutions are having are very technical about what exactly we are getting done,” she said. John Green, chief commercial officer at Ninety One, also said that this year “has more of a focus on the practical side of things”.  

’45 minutes for a croissant’  

While much progress has been made, some investors have raised concerns about logistics and location. Cairnes said that trying to find her way around had been “quite chaotic”, and that finding food had been a difficulty. One of her colleagues was left queuing for 45 minutes for a croissant, and many people have been forced to pack breakfast from the morning buffet in their hotels. WiFi has also been an issue, but Cairnes said that difficulties were to be expected given that it is the second most attended COP after Glasgow, and added that despite the chaos “it’s really vibrant with lots of opportunities to meet people”.

Rathbone Greenbank’s Day was complimentary about initial registration, which she said went smoother than in Glasgow. She agreed that queues were quite long for food and drink, and said there was an hour queue for an Eco Sim. “I think the hosts have worked hard on getting the centre together in a short space of time and I’m sure it has been a learning process for everyone regarding future COPs,” she added.  

Kidney said that the location was “inappropriate”, adding that Sharm el-Sheikh is a car-based resort, and the volume of people flying in showed a lack of understanding of political symbolism. He also criticised the idea of having heavy air conditioning “in incredible heat” at a climate conference hosted by a gas state.

Asked whether Egypt’s poor human rights record was an issue, Kidney said that the host decision was a UN process. “It doesn’t choose to discriminate on the basis of things that we consider important in Western countries and we have to live with that at the moment”. However, he did suggest that investment decisions and execution plans should take account of human and labour rights, and it was always important for civil society to highlight the issues.   

Michael Lewis, head of sustainable finance research at DWS, said he’d had difficulty getting between zones as buses were sporadic and confusing. He said he’d seen low participation, with “very little private sector that I could see”, but had then heard Egyptian claims that 40,000 people were attending.