Bert Kramer, Head of Research at Climate and ESG Solutions, and I attended COP27 in Sharm El Sheikh this year and observed the collective shift in tone from ambitious target-setting towards an attempt to tangibly implement climate compensation amongst our world leaders and industries. Tangible progress on the ‘loss and damage’ discussion has been hard fought by developing countries and is an important aspect of global climate justice. This COP should have delivered steps on compensation as well as progress on fossil fuel phase-out. As investors are faced with significant risks associated with climate change, the outcome of COP27 should be seen as a rallying cry for coordinated investor action to deliver on a just and inclusive net-zero globally - irrespective of public policy (in)action on mitigation.

Despite the ongoing uncertainty driven by the looming economic downturn, the Ukraine-Russia war, and the European energy crisis, this year’s summit saw our world leaders take a tangible step forward on climate justice by agreeing to establish a global ‘loss and damage’ fund.

Developing countries, disproportionately affected by climate disasters while also being significantly less contributors, will now have the ability to seek monetary compensation to fund much needed assistance across the most climate-affected areas within their society. One key example that comes to mind is Pakistan, where 33 million of their citizens (almost 50% of the UK’s population) were displaced by unprecedented floods earlier this year despite emitting a mere 0.1% of the world’s total emissions.

Climate change minister for Pakistan, Sherry Rehman hailed the loss and damage deal as a welcome step forward towards addressing the unequal consequences of climate change. World Resources Institute CEO Ani Dasgupta added, “This loss and damage fund will be a lifeline for poor families whose houses are destroyed, farmers whose fields are ruined, and islanders forced from their ancestral homes.”

At Ortec Finance, we welcome such an initiative to uphold climate justice and make positive progress against the social dimensions of climate change. However, participation in such an initiative should not be used as any form of justification towards falling short of previous commitments to limit the rise in global warming to 1.5^oC. We stand firm that the 1.5^oC goal needs to ultimately remain, and it was certainly disappointing to see some countries seemingly revert towards the less ambitious goal of well-below 2^oC, thereby undermining the paramount collective push for net-zero emissions in Glasgow.

In addition, the Parties’ commitment shown this year towards mitigation, or reducing greenhouse gas emissions, remains foggy. While Glasgow delivered ambitious coal and methane phase-out agreements, this year’s summit failed to mark material progress or improvements. For example, while it is encouraging to see additional countries sign up to the methane phase out commitment, China is notably absent from this important pledge. Moreover, the vague use of ‘low emissions’ terminology in conjunction with ‘renewables’ may facilitate a loophole for well-placed countries to remain reliant on natural gas rather than proactively leading the transition to renewables.

In our view, the events that unfolded at COP27 will have a number of implications for investors, particularly those who are in the midst of shaping their climate strategy. Our key takeaways:

1. Without clear global policy leadership, the need for the global financial industry to work together collaboratively to deliver net-zero remains as imperative as ever, arguably accelerated by the recent controversy surrounding GFANZ. We applaud Aviva's inspiring call to the finance sector to establish a global transition plan at the new 2024 Bretton Woods conference to actively reform the global architecture framework and mobilize private capital to avert a looming climate catastrophe.


2. Divesting from emerging markets and shifting focus towards developed markets is not the approach/simple answer to achieving net-zero. This directly contradicts key objectives of the ambitious ‘loss and damage fund’. Decarbonization and financed emissions should not be viewed in isolation but rather in careful consideration with other parameters. Carbon is just one piece of ‘E’ in ESG, the Ortec Finance team urges financial institutions to delve deeply into how their investment decisions can positively drive climate justice, biodiversity, and nature-based solutions to achieve a truly ‘just transition’ towards net-zero.


3. Transparency remains of utmost importance. Active disclosure by companies, asset managers and owners on their emissions, targets and transition plans as well as climate-related financial risks and opportunities remain paramount. Even if the figures are not flattering, accurate data collection is needed to face the challenge.

Here at Ortec Finance, we continue to critically monitor progress and developments within academia, industry, and regulations to decipher and quantify the world’s ‘true climate progress’ from the noise. Using our best-in-class Climate MAPS scenarios powered by Cambridge Econometrics for both risk/return (MAPS) and alignment (ALIGN) analyses, we strive to holistically support our clients by assessing and managing their climate risk exposure as well as impact.

Click here to learn more about Climate MAPS and here for more about our other Climate & ESG solutions.

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