Following a relatively chaotic two weeks, the COP27 summit in Egypt concluded with the Sharm El Sheikh Implementation Plan agreed on the 19^th of November. There were some major breakthroughs – such as a new funding mechanism to help countries deal with the impacts of climate change. But there was little tangible progress in accelerating climate action on the scale necessary to keep the 1.5C temperature goal alive.  

All eyes will now switch to COP28 which will be the key test of whether the Paris Agreement is more than a license for greenwashing. Pressure will also build on countries to take action at a national level given the lack of international cohesion. There will also be higher expectations for businesses to take the lead in a difficult fiscal and economic environment. Despite COP27 offering little that was new, there is still a great deal more to come. 

Unpacking the final agreement  

Deep divisions between developing and developed countries continued at COP27. Petrostates – emboldened by the current energy crisis – pushed back hard on new commitments. Rich countries struggling with domestic budgets did not cough up new climate funding. The result was a final agreement that largely reflected the existing commitments made at COP26 in Glasgow last year.   

• Global climate ambition: Despite a diplomatic effort from large emitters, COP27 managed to secure no backsliding on the COP26 pledge to limit global warming to 1.5C – a slight strengthening of the language in the original Paris Agreement. This was a hard one. There was a promise that countries would collectively work to strengthen action in future, but with a deadline running to COP31 in 2026 – hardly urgent. 
• Fossil fuels and energy: A coordinated push by countries including Russia and Saudi Arabia to weaken commitments made at Glasgow on reducing fossil fuel phase-out was contested by the US, EU, and UK. The outcome has worried many, with no agreement to phase out fossil fuels beyond coal. The late inclusion of ‘low-emission’ energy solutions as a route to tackling climate change is being seen as a potential open door for justifying investment in gas. 
• Loss and damage: The lack of ambition on mitigation was to some extent glossed over given the breakthrough on agreeing a mechanism to support poorer nations deal with the impacts of climate change – an agreement that has proved elusive for the last 30 years. But the devil will be in the detail – the size of the fund, or who has to pay into it, still remains unresolved.  
• Finance and adaptation: Despite hopes that an ‘African’ COP would unlock new funding for climate finance, only a few major donors made new commitments. There was no agreement on a future international target for climate finance to replace the $100bn 2020 goal. There was some positive movement on private finance, though more promises of future action than firm commitments.    
• Carbon markets: The technical follow-up negotiations on Article 6 left many frustrated, with many divisive issues kicked to COP28, and with trading under Article 6 unlikely before 2024. The framework risks losing relevance as voluntary carbon markets take off in the years ahead and the developing accounting and reporting framework for trading carbon credits becoming highly complex.  

What does COP27 mean for geopolitics and the international climate agenda  

One of the key lessons from COP27 is that geopolitical tensions are inflicting significant damage to global climate action and ambition. The importance of key diplomatic relationships to avoid competition killing progress is growing, specifically the US-China relationship. Their agreement to resume talks on climate change is a welcome albeit fragile development that could yield important results if the two countries genuinely engage with each other. For the EU and the UK, the challenge is to find a space in the geopolitical divide. There will be more of an expectation for them to lead domestically, but there is limited economic or political space to do so. 

Many involved in the COP process wisely set low expectations for what could be achieved at COP27 in advance. The agreement on loss and damage adds more weight to the year ahead and many hope that the energy crisis will abate, leaving more space for the climate agenda to be more prominent in 2023. This matters as COP28 is a critical juncture. It is the moment where the first ‘Global Stocktake’ under the Paris Agreement framework is due – effectively the moment where countries must take stock of whether enough progress is really being made.  

If COP28 fails to unlock a more credible pathway to urgently reduce emissions in line with a 1.5C scenario, many will start to lose faith in the value of the UN-led process. The UAE are well aware of this – success will require support from high-ambition nations and hosts will face an uphill battle to manage fossil fuel interests in the Gulf. Progress is not guaranteed. COP28 could become the moment where the growing political trend we saw in Egypt – a focus on dealing with the impacts of climate change opposed to cutting emissions – gathers pace. 

Where next for business? 

The challenges seen at COP27 are not a reason for business or investors to ease off on corporate ambition or green investment plans. If anything, there will be more pressure to act. National governments and regulators are starting to abandon hope of major international agreements, choosing instead to accelerate action at a domestic level. We expect 2023 to be a busy year, with countries desperate to attract green infrastructure investment to boost energy sovereignty and set new regulations to foster domestic market-creation, including in areas like financial services.  

This creates significant opportunity. A more supportive political environment will help projects that have been delayed given all the upheaval in the last 12 months, in particular in the UK. But there is also a growing risk of international divergence with very different political and policy environments in different countries and regions and divergence in technical rules on areas like green finance. Businesses will need to carefully navigate the volatile external environment, while not letting up on their own climate plans. 

This article was written by Josh Buckland who leads Flint’s Energy and Sustainability team. He was previously Energy Advisor to the Secretary of State for Business, Energy and Industrial Strategy and a Senior Advisor in the government’s COP26 Unit. He wrote this blog with input from Zoe Alipranti who advises corporate and investor clients about policy and regulation of the climate and sustainability agendas.