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‘Loss and damage’ is the hot debate at COP27

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One thing to start: check out this FT scoop on US climate envoy John Kerry’s plans to push at COP27 for a new carbon trading system. Governments could earn carbon credits by reducing emissions – with companies then buying those credits to use as offsets. We’ll have more on that in the days ahead . . . 

Hello from Sharm el-Sheikh, where the COP27 climate conference kicked off yesterday in dazzling sunshine. I and other FT colleagues will be reporting from the ground throughout, and we’ll be sending special COP editions of Moral Money your way every weekday for the duration of the summit.

The hot weather is not the only contrast with last year’s COP26 in Glasgow. Where that event was enlivened by noisy protesters from all over the world, I’ve so far seen no demonstrations — except for a handful of people quietly holding a banner promoting veganism.

That’s no surprise, of course. A week ago I watched Greta Thunberg tell a London audience that she would not attend COP27, citing the “extremely limited” space for civil society as a key factor. The host nation, Egypt, has imprisoned tens of thousands of government critics, according to Human Rights Watch.

Yesterday one of those people, Egyptian-British software developer Alaa Abdel Fattah — who has spent most of the past decade in prison for organising protests and “spreading fake news” — began a water strike having already refused food for 200 days.

UK prime minister Rishi Sunak — already in the spotlight having initially refused to attend the summit, before relenting — is under pressure to use his visit to secure Abdel Fattah’s release. “The Truman Show in Sharm rests on the same poverty and repression that caused the 2011 turmoil,” former UK ambassador John Casson wrote yesterday, referring to the revolution against Egyptian strongman Hosni Mubarak more than a decade ago.

Abdel Fattah’s case is a particularly shocking illustration of the political and humanitarian issues swirling around this event, in Egypt and far beyond. But thousands of delegates from all over the world are here now, and they have a chance to take some real steps forward in tackling the climate crisis.

Today we focus on what looks like the biggest issue at this year’s conference: financial support from rich nations to compensate poorer ones for climate loss and damage. And from the world beyond Sharm, Patrick has an update on signs of surprising strength in the green bond market.

See you tomorrow. (Simon Mundy) 

COP27 day 1 in brief:

  • During the opening session, the World Meteorological Organisation published a report saying the past eight years were on track to be the warmest on record.

  • UK prime minister Rishi Sunak arrived in Sharm el-Sheikh, where he is due to give a speech today on how Russia’s invasion of Ukraine has reinforced the importance of the energy transition.

  • The Running Out of Time relay, in which runners, cyclists and sailors have carried a baton 7,767km from COP26 host city Glasgow, arrived in Sharm el-Sheikh after more than two months.

The arguments against loss and damage compensation are running out of road

At 26 consecutive COPs, rich nations have successfully resisted formal discussion of one of the most obvious moral questions presented by the climate crisis: whether, and how, they should compensate poorer countries for the loss and damage driven by their carbon emissions.

This year will be different. Yesterday, for the first time, a COP agenda was approved that included this fiercely controversial subject, which must now be discussed here in Sharm el-Sheikh over the next two weeks. Conversation is likely to focus on the creation of a dedicated loss and damage facility, and who should fund it, with how much money and by when. As UN secretary-general António Guterres put it earlier today: “Loss and damage can no longer be swept under the rug. It is a moral imperative.”

Tragic recent events may have played a role in driving this change of tack. In Pakistan, floods have killed more than 1,700 people and driven loss and damage of $30bn, according to the World Bank. Flooding in Nigeria has killed 600 people and displaced 1.3mn.

Pakistan and Nigeria have annual carbon emissions, respectively, of 0.9 and 0.6 tonnes per person. In the US, even after a marked decline so far this century, that number is 14.5 tonnes.

So stark is the moral calculus here, it might seem astonishing that the issue has only now made it on to the COP agenda. But perhaps that’s precisely why rich nations have pushed back so hard on the concept of loss and damage compensation — even inserting into the text of the 2015 Paris Agreement a line stressing that it “does not involve or provide a basis for any liability or compensation”. So disproportionate is the contribution to cumulative carbon emissions by the richest countries — and so disproportionate is the impact of climate change on poorer ones — that the sums involved here threaten to be vast, and potentially limitless.

But the US and other wealthy nations may now have decided that to flatly reject this conversation any longer would be dangerous. In the tussle for geopolitical influence, China has been gradually increasing its assistance to climate-vulnerable nations; China’s head climate envoy Xie Zhenhua stressed yesterday he hoped COP27 would “meet the demands of developing countries as much as possible”.

And some developing nations are becoming increasingly forceful in their campaigning on this front. Nikenike Vurobaravu, Vanuatu’s president — along with 13 other nations — is pushing for the UN General Assembly to refer this matter to the International Court of Justice. Under Vurobaravu’s plan, the ICJ would be asked for an opinion on the rights and obligations of nations under international law in relation to damaging climate impacts.

An ICJ ruling in favour of developing nations on this issue would be non-binding, but it could be morally devastating to the arguments against loss and damage compensation, and open the door to a flood of further litigation. All the more reason for developed nations to treat this new agenda item at COP27 with the seriousness it deserves. (Simon Mundy)

Quote of the day 

Everybody, every single day, everywhere in the world, needs to do everything they possibly can to avert the climate crisis

Simon Stiell, executive secretary of the United Nations Framework Convention on Climate Change

Beyond COP27: green bonds stay afloat, but weakness seen for 2023

Tall office buildings in Hong Kong at dusk
Hong Kong this year issued HK$20bn (US$2.5bn) in green bonds for retail investors © Bloomberg

With interest rates and scrutiny of green investing rising worldwide, you would think that the sustainable debt market would have been crippled this year.

In fact, evidence shows that this small but fast-growing sector has persevered, despite unprecedented headwinds.

Global debt issued for environmental, social and governance (ESG) purposes is expected to hit $1.3tn this year, according to a report published last Friday from the Institute of International Finance. This figure would put the total debt issued within $200bn of last year’s total, the IIF said. It’s a relatively small figure considering how much has been thrown at the sector this year.

The market has found surprising strength in emerging markets. The IIF estimates that emerging and frontier market ESG bond issuance will hit $230bn this year, versus $250bn last year.

For example, Hong Kong this year issued HK$20bn (US$2.5bn) in green bonds for retail investors, the largest retail green bond issuance in the world, according to JPMorgan. 

Sustainability-linked debt has enjoyed enduring appetite, the IIF said. These securities adjust interest rate payments based on whether certain green targets are satisfied and are seen as more flexible than green debt. The IIF said year-to-date sustainability-linked bond deals have held steady with last year. And shorter term sustainability-linked loans have soared in demand, it said.

Green bond deals are likely to slow further in Europe next year, Dutch bank ING said in a November report. There are limits to the number of deals banks can tag as sustainable, ING said. For example, banks will find it hard to extend more green criteria to their mortgage portfolios. Still, new sustainability regulations going into effect in Europe could serve as a tailwind for the sustainable debt market, ING said.

In a market that has crushed high-flying technology stocks and the mighty US Treasury market, it is notable that green debt has at least trodden water this year. (Patrick Temple-West)

Smart read

Here’s a really interesting take on Mark Carney’s increasingly controversial Glasgow Financial Alliance for Net Zero (Gfanz) corporate climate initiative, from academics Tom Gosling and Harald Walkate. “If Gfanz collapses that would be a significant loss in the battle against global warming”, they wrote. “But at the moment it isn’t doing what it needs to do, and the contradictions and overstated claims of Gfanz are damaging credibility. We need a new way forward.”

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