As businesses balance increased scrutiny of their sustainability work and a tough operational landscape, here are five themes to watch out for at COP27

Once a domain dominated by policymakers and a handful of NGOs, in recent years the annual Conference of the Parties (COP) has become an important platform for businesses to convene, debate, forge partnerships and announce commitments. This has become particularly true since COP21. Hosted in Paris in 2015, COP21 was the first time that all countries committed to reduce global emissions so that average temperatures will stay ‘well below’ two degrees of warming. This gave rise to increased momentum and acknowledgement of the crucial role business must play. The trend reached a crescendo at COP26 in Glasgow, UK last year with the announcement of several high-profile, business-led initiatives, including the Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition of financial institutions committed to accelerating economy-wide decarbonization.

Fast-forward a year and the picture is a little different. Although the race to net-zero is as fierce as ever, rising inflation, the cost-of-living crisis, soaring energy prices and war in Ukraine have made the operational landscape more challenging for businesses in most industries, particularly those with a strong operational presence in Europe. Geopolitics further complicates matters, with relations between the world’s two largest emitters, the United States and China, ever more tense. Whilst there is no disputing the role of business in funding, facilitating, and delivering much of the necessary transition to a green and just economy, this year businesses speak of walking a tightrope between showing that they remain engaged and are making progress against their goals, and not over-committing.

Against this backdrop, five key themes have emerged to watch out for.

1. A shift from pledges to outcomes

If COP26 was a COP famed for galvanizing new Nationally Determined Contributions (NDCs), the emission reduction plans each country must submit every five years, and new pledges from the private sector, COP27 hopes to be heralded as the first ‘implementation COP’. This is not to say that new commitments won’t be made – they will be. But the focus of discussions is expected to be on the arguably harder part; showing how to accomplish the goals that have been set.

Much of the engagement from business in COP27 that we have seen so far reflects this tone. The emphasis is on communicating evidence of follow-through on previous pledges and targets, and new capital allocations that help drive the transition.

Scale will be an important component of this debate. Isolated incidents of success, whilst welcome, will not move the needle so the emphasis will be on proof points at scale. This is especially true if this success is easy to replicate and can be delivered without requiring a long period of preparation.

2. Sustainable finance is (still) critical

Despite the recent challenges facing GFANZ and other financial alliances designed to harness collaboration and leverage the goodwill of similar businesses, sustainable finance is still expected to play a leading role in addressing the financing gap for the transition. Private capital is required to invest in the innovations and scaling required to ensure we have the technologies that will be required to reach NDC commitments. Blended capital, comprising a mix of grants and loans, typically from a mix of private and public sources, is still considered a helpful mechanism despite being given less prominence.

Although the significance should not be overstated as many factors are at play, as gatekeepers of both debt and equity capital, the presence, or not, of c-suite leaders of key financial institutions will be revealing, and at least somewhat indicative of how much this important constituent group is willing to stick with their aggressive program of change despite the turbulent times.

Another critical issue will be whether multilateral financial institutions like the World Bank decide to link progress on climate change mitigation strategies to developing world debt forgiveness schemes.

3. Sharpened focus on ‘loss and damage’

Related to the financing discussions, and especially important as limited progress was made at COP26, the issue of ‘loss and damage’ is expected to capture a lot of attention this year. At their core, loss and damage discussions call on wealthier countries to compensate developing countries for the costs that they have already incurred due to climate change, and to finance new adaptation efforts. The recent floods in Pakistan are a good case in point. Pakistan’s cumulative emissions are just 0.3% of cumulative global emissions[1] yet earlier this year, climate change related extreme weather conditions caused floods that covered over one third of the country in water.

Related to this, we expect a stronger focus on adaptation strategies at COP27 as compared to previous years. Although ideally governments and businesses would be able to pursue adaptation strategies and mitigation strategies simultaneously, the reality is that in most instances there are limited opportunities to leverage investments in one to support the other. This creates a risk that resources are directed away from mitigation in order to tackle adaptation challenges. With Africa and the Middle East warming faster than the global average[2], this is likely to be a particularly pertinent issue.

4. Stronger influence of Africa and the Middle East

COP27 is the first COP to be hosted by an African nation since Morocco hosted COP22 in Marrakech in 2016. Reinforcing this, the 28^th session of COP will be hosted by the United Arab Emirates (UAE) in Dubai next November.

Although in theory, the location of a COP should not have a material impact on its outcomes since the hosting responsibility rotates among member countries in different regions of the world, the signalling is nonetheless important. Additionally, hosting COP brings increased influence for, and scrutiny of, the host country. For example, attention has been drawn to Egypt’s authoritarian style of government and the UAE’s per capita emissions.

There are hopes that by having two COPs consecutively in Africa and the Middle East, countries that are disproportionately impacted by climate change will have a stronger voice and space to help shape the agenda. This aspiration is contingent on enough world leaders being there to listen.

5. Increased focus on the connectivity between key issues

Finally, we anticipate ever more nuanced discussions about the connectivity between issues, for example decarbonisation and biodiversity. COP27 precedes the most important global discussion yet about biodiversity, COP15, which will take place in Montreal, Canada in December. We expect biodiversity to be a theme that will run throughout much of the discussion as the inextricable link between protecting biodiversity and achieving the IPCC’s global temperature minimization goals reaches widespread acceptance. Lula’s recent political victory in the Brazilian presidential elections is likely to provide welcome momentum to efforts seeking to protect the Amazon and its critical biodiversity.

Another example of interconnectivity is the global food system. With recent extreme weather conditions and the war in Ukraine exacerbating and exposing existing fragilities in the world food systems, food security and sustainable food production are likely to be recurring themes. This cross-cutting topic has implications across many of the thematic days of COP, including decarbonization, biodiversity, agriculture and solutions. Sustainable food systems are often a topic that triggers discussions about equity and distribution, with approximately 800 million people affected by hunger in 2021 and almost 3.1 billion people not able to afford a healthy diet in 2020[3], but rising obesity rates elsewhere in the world.

Despite the complicated backdrop, if governments and businesses can show a steadfast commitment to their decarbonisation aspirations in the face of challenges, and showcase action, not just pledges, there is hope that this COP could yet prove to be successful.

For more information about FTI’s ESG and Sustainability services and presence at COP27, please contact Hannah-Polly Williams, Sara Powell and Kerstin Duhme.

The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

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[1] Our World in Data, Pakistan specific Cumulative Emissions. https://ourworldindata.org/grapher/share-of-cumulative-co2?time=latest&country=USA~GBR~CHN~IND~European+Union+%2827%29~PAK

[2] World Meteorological Organization, State of the Climate in Africa 2021 https://library.wmo.int/doc_num.php?explnum_id=11304

[3] Food and Agriculture Organization of the United Nations, The State of Food Security and Nutrition in the World 2022 https://www.fao.org/documents/card/en/c/cc0640en