COP27, week one: an implementation race gets off to a flying start

Brendan Bateman
10 Nov 2022
Time to read: 4 minutes

Week one at COP27 has seen major activity around finance and accountability on net-zero, and we should expect more regulator action on greenwashing.

The sense of urgency that permeated the statements of world leaders, the UNFCCC executive and the Chair of the IPCC at the opening of COP27 on 6 November, although very familiar by now, has certainly got COP27 off to a flying start.

Already, we are seeing many of the key issues which we flagged last week at the centre of intense negotiations such as loss and damage, finance and implementation of mechanisms established under the Paris Agreement.

Paying for climate change mitigation and adaptation

As we foreshadowed, on the issue of finance, there have been consistent calls to better define what in fact constitutes climate finance with many developing country groups, such as the Alliance of Small Island States (AOSIS), declaring that non-concessional loans are not climate finance. Until this definitional issue is resolved, it will be difficult to see progress being made on setting the new long-term climate finance goal.

AOSIS has also been vocal on the issue of loss and damage, with it proposing a global carbon tax to be imposed on fossil fuel companies to direct funding to the loss and damage mechanism currently up for discussion at COP27. While this proposal is unlikely to gain traction, initial exchanges on operationalising a loss and damage fund are certainly more positive, with it being observed that several world leaders actually attended informal negotiations on loss and damage funding rather than leaving it to their delegations. There have also been pledges of funding by some developed countries although questions remain over whether this is “new” money. Nevertheless, these developments have been seen as the strongest signs yet of a determination to resolve funding arrangements for loss and damage.

The negotiations on the fine details of implementing the mechanisms under Article 6 of the Paris Agreement have been constructive even though the subject matter is technically complex. Informal consultations being undertaken by the Subsidiary Body for Scientific and Technological Advice (SBSTA), co-facilitated by Kate Hancock from Australia, have hit their straps with general agreement to use an informal document prepared by the Chairs to progress drafting of a decision text for Article 6.4 to be submitted to the CMA (Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement). That draft document covers a number of issues to be resolved, including:

  • reporting with the need to reconcile the competing demands for transparency with avoiding duplication of effort;
  • ·operation of the registry mechanism where issues regarding duplication and interoperability between the registries under Articles 6.2 (bilateral) and 6.4 (Sustainable Development Mechanism) require resolution;
  • how to use the 5% levy on the value of transactions under Article 6 (share of proceeds) towards administration and adaptation, with one option being to allow the Adaptation Fund to develop and implement a strategy for the adaptation share; and
  • how to ensure that the treatment of credits work in a way that deliver real emission reductions, or overall mitigation in global emissions (OMGE).

Australia’s COP27 action (so far)

Australia has joined a number of multinational initiatives since the start of COP27, the most recent being the launch of a Global Pledge to Improve Shipping Industry Emissions. The day before Australia became a founding member of the Forests and Climate Leadership Partnership which has as its objectives to halt and reverse forest loss and land degradation by 2030, and promote sustainable production and trade.

Meanwhile, at the Australian Pavilion, a number of sessions were held focusing on scaling up investment in High-Integrity Nature-Based Climate Solutions to deliver meaningful emissions reductions as well as protecting the natural environment. This included a focus on regional opportunities under the Blue Pacific Call to Action announced in June 2022 and how Australia can help Pacific states deliver on their priorities at COP27.

Making net-zero commitments clearer and more accountable

At COP26, the UNFCCC established a High-Level Expert Group to address net-zero commitments by businesses, financial institutions, cities and regions. This was done to address an increasing concern about the rigour in the increasing number of net-zero commitments made by these non-state actors.

On 8 November 2022 at COP27, the Expert Working Group released its final report Integrity Matters: Net-Zero Commitments by Businesses, Financial Institutions, Cities and Regions in which it made ten recommendations to ensure that any net-zero commitments are real, and contribute to the global effort to address climate change:

  1. Announcing a net-zero pledge – A net-zero commitment must be by the entire entity and represent that entity’s fair share of the required global climate mitigation effort.
  2. Setting net-zero targets – A pledge must have targets for every five years and set out concrete ways to reach net-zero in line with modelled emission pathways that limit global warming to 1.5 degrees. The plan must reflect the urgency to reduce global emissions by at least 50% by 2030 meaning that action can’t be delayed. Further, the plan must cover the entire value chain including end-use (scope 3) emissions.
  3. Using voluntary credits – Offsets are not a substitute for emission reductions across the entire value chain. High integrity offsets should only be used for beyond value chain mitigation, and not count towards interim emission reductions.
  4. Creating a transition plan – Plans must be comprehensive and publicly disclosed, detailing all actions to meet targets. This includes how an entity will align governance and incentive structures (eg executive renumeration), capital expenditures, research and development and public advocacy.
  5. Phasing out fossil fuels – Plans cannot support new fossil fuels and need to decommission and retire existing fossil fuel assets.
  6. Aligning lobbying and advocacy – Entities must lobby for positive climate action, not against it.
  7. People and nature in the just transition – Entities with significant land use emissions must ensure by 2025 that operations and supply chains do not contribute to deforestation and destruction of remaining ecosystems. Financial institutions should have a policy of not investing or financing businesses linked to deforestation and remove such activities from their investment and credit portfolios.
  8. Increasing transparency and accountability – Annual public reporting in which each entity details progress against their plan. Reports should be independently verified and added to the UNFCCC Global Climate Action portal.
  9. Investing in a just transition – Global net zero, and a just and sustainable transition requires financial institutions to take more risk and set targets to scale up investment in the clean energy transition in developing countries.
  10. Accelerating to road to regulation – Regulators should develop regulations and standards to create a robust regime around net-zero commitments. This should start with high-impact corporate emitters and financial institutions. Regulators should co-operate and work with voluntary standard setting initiatives (such as Climate 100+ and SBTi) to drive the new rules of the global economy which align with the goals of the Paris Agreement.

This report addresses a core concern – that net-zero pledges are mere greenwashing – by setting tight definitions around what it means to be net-zero. Speaking at the launch of the report, UN Secretary-General Antonio Guterres said "we must have zero tolerance for net-zero greenwashing".

The report adds to the growing body of work and initiatives to ensure that net-zero commitments are real and make a real contribution to climate mitigation. The call for action by regulators will also add to the impetus for mandatory climate risk disclosure by corporations in Australia, and we can expect to see a continuation of the convergence around standards which will be acceptable to regulators and investors.

Get in touch

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.