End of climate summit: time for action
COP27, the 27th edition of the United Nations climate conference, focused on global climate policy. Although countries are increasingly stepping up to announce their climate ambitions, prior to the summit many did not have clear and specific action plans in place, nor the necessary legislative framework. Ample reason, then, to evaluate the results of this climate conference.
COP27 asked, but elicited little action
Natural disasters are increasingly forcing the world to think about climate: forest fires in southern Europe, unprecedented floods in central Italy and drought in many European countries. The past summer in Europe makes it difficult to deny that our climate is changing. Moreover, the situation will get worse in the coming years if no action is taken.
Consequently, in the run-up to the climate conference, the calls for action were loud, but in many countries climate concerns were drowned out by more acute problems such as the energy crisis, high inflation and the war in Ukraine. The disappointing outcome of the COP27 climate conference therefore comes as no surprise. A key issue on which the conference failed to reach a consensus is the gradual phasing out of all fossil fuels. The final statement was actually unchanged from last year on this point. That is a serious disappointment, although it has to be said that more ambitious targets would not in themselves be a panacea. At the last climate summit in 2021, more than 140 countries, together accounting for almost 90% of global greenhouse gas emissions, expressed the ambition of reducing their net emissions to zero by 2050. Even after the new climate summit, most countries still do not have in place the concrete action plans needed to achieve this.
Action plans and commitments are often shelved due to acute threats, such as the energy crisis.
Cora Vandamme – senior economist KBC Group
COP27 delegates did manage to agree on a 'loss and damage' fund for the most vulnerable countries, though with some caveats. By sticking to its status as a developing country, China, the world's largest emitter of new greenhouse gases, will not be contributing to this fund. Moreover, it is unclear who will pay for what. This carries the risk of the fund becoming an empty shell. In recent years, the target of providing climate funding to the tune of 100 billion USD per annum for developing countries, starting from 2020, has also been missed.
A few bright spots
Despite everything, some positive steps were taken.
- For instance, the European Union announced that by 2030 it will achieve a net reduction in greenhouse gas emissions of 57% compared to 1990, compared with the previous target of 55%. The European parliament recently decided that 'land sinks', such as oceans and vegetation, should not be used to meet the 55% emission reduction target. Consequently, they are now shown separately, and the EU has arrived at a target of 57%. In other words, the 2% comes on top of the existing 55% target.
- There was also good news from the United States, as President Biden renewed the US commitment to meet climate targets. This came as a positive signal, after President Trump had previously withdrawn from the Paris climate agreement.
- Outside the climate summit, too, climate is playing an increasingly important role in the policy choices being made by governments, even in times of crisis. In a similar way to the efforts deployed during the COVID pandemic, the focus of EU recovery plans during the current energy crisis is firmly on fighting climate change. The geopolitical context and the quest for greater energy independence are adding to this drive. In the short term, however, it's a case of 'needs must', and an increase in emissions is likely as gas is replaced by more polluting fossil fuels such as oil.
- In the US, combating climate change was given a prominent place in the Inflation Reduction Act, intended to curb high inflation. The Act opens the way for grants and subsidies totalling hundreds of billions of dollars to help finance more environmentally friendly technologies, and takes the United States a substantial step closer to meeting its stated climate target.
No place for fossil fuels in responsible investing
Asset managers can also do their bit in the fight against climate change. For example, KBC Asset Management, KBC's asset manager, excludes companies involved in the mining of thermal coal from all KBC investment funds, as well as utility companies that use thermal coal to produce electricity. An exception is permitted for coal used for the production of steel (metallurgic coal). This is because, apart from recycling, steel can only be produced efficiently using coal.
In addition to thermal coal, KBC responsible investment funds also exclude all fossil fuels, including oil and natural gas, regardless of the method of extraction. In addition, only utility companies that strive to achieve reliable, safe and low-carbon, energy-efficient electricity are eligible for inclusion in the responsible investment funds.
Specific targets for carbon intensity
However, excluding fossil fuels is not enough on its own. Companies in other sectors also need to be given a push in the right direction to reduce their carbon intensity.
With this in mind, KBC Asset Management is aiming to reduce the carbon intensity in all its responsible investment funds by 50% by 2030 compared to the end-2019 baseline.
If you’d like to know more about KBC Group's climate efforts, you can read the full climate report here 20220930-climate-report.pdf (kbc.com).