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18 November 2022

COP 27: Where capital markets and regulation meet to deliver transition

If COP 26 was hailed as the ‘ambition COP’, with the international community making strong commitments on climate issues, COP 27 is where these pledges are expected to be brought to life, including a progression in global carbon trading markets and standardised international sustainability disclosures, with this last development answering the prayers of many.

Adapting for change
The focus of COP to date has primarily been on emissions reduction, however other themes expected to dominate the summit this week include climate adaptation and breakthrough private sector solutions to accelerate commercially viable decarbonisation. Good policy and good finance solutions will be required to deploy these mitigation and adaptation measures, ease the impact of environmental loss and damage and ensure the green transition is fair for developed and developing countries alike.

The role of Capital Markets
The capital markets have a key role in funding this transition. The scale of investment required will be larger than any individual state will be able to finance alone. Therefore, the global financial system will need to come together to provide pragmatic solutions, whilst negotiating a resurgence in climate risk scepticism that has been fuelled by rampant global inflation, European war and a cost-of-living crisis.

By accident or design, we are facing a resetting of energy and food systems to drive a more sustainable, healthy and equitable future. Investors and policymakers will need to support the transition towards more sustainable global consumption, while working on ways to help soften the impact of supply chain shocks from climate, disease or geopolitics.

Better data and improved regulation
Meanwhile, the progress Buchanan is seeing from our clients in the development of their environmental, social and governance data means that investors can now begin to understand the impact of their investments. Structured information gathering on natural capital issues and disclosure legislation is helping investors identify both negative risks and positive impact opportunities, laying the groundwork for better regulation in order to address specific issues.

Help comes with a common standard
The IFRS sustainability initiative launched at last year’s COP 26 – the International Sustainability Standards Board (ISSB) – to set a global disclosure standard is on track to finalise its plans in early 2023 with regulators likely to change existing rules to incorporate the new standard. This will build on the existing Task Force on Climate-related Financial Disclosure (TCFD) framework adopted by main market companies in the UK and institutions around the world.

The objective of this enhanced accountability is to drive the transition toward not only a net zero future but also a just and nature-positive one, at the pace required.

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The sustainable strategist
Investment Daily Bulletin