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11 1 How does the Cop27 climate conference affect ESG investing?

Recently, world leaders gathered to discuss climate change at a United Nations (UN) conference. While the talks that took place may seem far removed from your investment portfolio, they can affect the ESG investment market, which considers environmental, social, and governance issues. 

The 2022 meeting of the United National Framework Convention on Climate Change, dubbed “Cop27”, took place in Sharm el Sheikh, Egypt, between 8 and 20 November 2022.

It brought together global leaders, from politicians to business leaders, to negotiate how to mitigate and adapt to climate change, including how to finance the changes necessary. In 2015, the Paris Climate Agreement was made at a UN meeting, where parties committed to working towards a common goal – limiting global temperature rises to below 1.5C.

Much of the discussions at Cop27 focused on the goal. This year, there was an emphasis on implementation after parties made plans and agreements at previous events in Poland and Scotland.

In his opening speech, Simon Stiell, UN climate change executive secretary, said: “Today, a new era begins, and we begin to do things differently. Paris gave us the agreement; Katowice and Glasgow gave us the plan; Sharm el Sheikh shifts us to implementation.”

He continued that politicians, businesses, infrastructure, and action must all align with the Paris Agreement if it is to be successful. Among the critical lines of action was making progress on financing the move towards greener economies.

So, does the conference affect ESG investing at all? Yes, while the conferences are often followed by calls that the commitments don’t go far enough, they can have a positive effect on ESG investing in several ways.

1. It brings ESG issues to the forefront

The discussions among world leaders gain headlines and can spur action among people that aren’t attending the event, including other businesses. It can encourage more people to look at how their lifestyle contributes to the global issue.

While Cop27 focuses on climate change, this is often closely connected to other ESG issues. So, these conference discussions might include the health issues associated with climate change, or the working practices of businesses.

2. It provides an opportunity to share best practices

One topic that was discussed at this year’s event is how the private sector can deliver results even if national policies are lacking.

There are significant challenges in reaching the climate change goal, and one of the benefits of Cop27 is that by bringing leaders together, it presents an opportunity to share best practices. It can also foster collaborative partnerships. In turn, this means businesses have a better chance of making a real difference.

3. Encourage improvements in reporting ESG metrics

Finance was an important topic at Cop27. After all, huge amounts of investment is needed to support transitions to net-zero or low-carbon economies. One of the areas that was a focus this year is how the international finance community can align reporting and evaluation of ESG metrics.

If you’ve looked at ESG investment options, you’ll know how difficult it can be to not only compare them but understand if they match your views. While many businesses now publish corporate social responsibility (CSR) reports, getting to grips with what they mean can be far from easy.

There have been calls to create a standardised way of reporting for years. By bringing together key people at Cop27, this goal could be closer.

From an investor perspective, a standard way to report ESG metrics could make it easier to select investments that align with your ethics and values.

4. It holds world leaders to account

Politicians, businesses, and other leaders often make vague commitments to improve practices or tackle climate change. The UN conference is a way to hold those that have committed to the goal of limiting climate change to account.

It provides a way to challenge the commitments that are made to ensure they are credible, actionable, and timely. It’s a process that can help ensure everyone continues to move in the same direction.

While some will still argue that the conference doesn’t challenge world leaders enough, it does provide a starting point. It could highlight where some companies are failing to live up to the public commitments they’re making.

Get in touch to talk about ESG investing

If you’re interested in ESG investing and want to learn more, please contact us. Whether you already have an investment portfolio or are just getting started, we can help you align your ESG values with your lifestyle goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.