COP27: Successes, Failures and Implications for Financial Firms

Scott Segal, co-chair of Bracewell’s Policy Resolution Group, discussed with IFLR some of the key takeaways from COP27, including financial assistance for loss and damages caused by extreme weather events linked to climate change and the heightened focus on reforming the global financial system.

“The agreement is short on details regarding the final funding mechanism, delaying that discussion principally to COP28, to take place next year in the United Arab Emirates,” stated Segal on the financial assistance for loss and damages for developing nations.

Aside from direct payments from the national treasuries of developed nations, other dedicated sources of revenue were discussed, including methane fees, cross-border adjustments, and taxes placed on fossil fuel exports, Segal added.

As for implications for financial firms, Segal stated that the ground-breaking approach to establishing a multinational fund to address climate consequences underscored a general sense of urgency in the international community. Implementation and revenue sources for the fund are as yet unclear, and may have significant impacts for financial firms and those assessing climate risk management. New sources of revenue for climate mitigation and clean-energy projects in the developing world may create concrete opportunities for banks and other investment firms, particularly those with core competence in working with multilateral financial institutions. Future pledges to speed reductions in emissions may also create opportunities.

“While financial firms may stand to benefit significantly from new international climate finance pledges, they must remain attuned to increased international scrutiny to combat ‘greenwashing’ and to ensure investments achieve tangible environmental goals,” Segal continued. A variety of new public and private climate financing initiatives were announced at COP27 to channel investment to poorer nations impacted by climate change, but these finance efforts will involve “stricter scrutiny” to ensure funds are reducing emissions and not simply offsetting them.

In addition, Segal stated financial firms and risk management teams should continue to monitor implementation of international climate finance pledges to see how they can participate in new public-private deals and to understand how international compliance regimes may impact their investment decisions.

“In light of the adoption of the Inflation Reduction Act in the US, and continued inflationary impacts in part related to government spending, it is difficult to see the Biden Administration advocating for large funding commitments to an emerging United Nations effort,” Segal added. While the US negotiating team did reverse previous views on compensation, and offered support for the concept, a presidential election is just two years away – placing COP28 squarely in campaign season.

Click here to read more from IFLR (subscription required).