30 November 2022
Jillian Giberson, Senior Policy Analyst, Longevity Partners
Summary: Despite controversies, obstacles and geopolitical tension, there was at least one point of international agreement to come from the COP27 negotiations: we have entered a critical decade for climate action. In short, it is now or never.
The twenty seventh UN Conference of Parties was heralded as the ‘implementation COP’ with a focus on climate finance, loss and damage, and the ‘global stocktake’ of actions to take toward meeting the Paris targets. So, was it able to fulfil this critical role?
Admittedly, COP27, held in Sharm El-Sheikh, Egypt, faced an uphill battle from the start. From the ongoing war in Ukraine, subsequent global energy crisis, and geopolitical tensions between the US and China, the ability to make progress in the negotiations seemed at risk.
In addition, with economic conditions leading some to predict an upcoming global recession, the question of the role of private finance in climate action faced renewed speculation. Where government action is deadlocked, private capital can and should fill the gap. This is especially true for the real estate investment sector, where asset managers and owners are at the forefront of facilitating climate resilient and environmentally responsible buildings.
So, what were the outcomes of COP27, or lack thereof? And what do they mean for private financial actors, especially in the real estate sector?
Loss and Damage
One of the key priorities pushed by the Egyptian Presidency, a ‘loss and damage’ agreement to provide funding for developing countries, was reached in the final day of the conference. Addressing the effects of global warming on the world’s most vulnerable nations, has long been a controversial conversation, with the impacts of the climate crisis often being felt most severely by the communities least responsible for the rise in GHG emissions. Developed countries have historically resisted this narrative, however. The establishment of a specific fund to aid developing countries recover from climate disasters and the creation of a ‘transitional committee’ to support the operationalization of this fund, is consequently a major step forward.
Included in the Sharm el-Sheikh Implementation Plan, the administration of this loss and damage fund will require unprecedented financial cooperation between governments, central banks, and financial actors. The overall transformation of the global economy to a sustainable and low carbon system is estimated to cost at least $4-6 trillion a year; no small sum, especially given that developed countries failed to mobilize the agreed $100 billion a year by 2020 for climate finance. Simply put, meeting these targets would be impossible without private finance.
The loss and damage agreement should signal significant opportunities for private actors. Now more than ever, investment in climate resilient infrastructure, technology and recovery is not just needed, but offer unprecedented opportunities for private investors, especially in the realm of real estate.
Building to COP Coalition
One prime example of the real estate sector’s increasing involvement is the Building to COP Coalition, a group of organisations launched at COP26 and working toward sustainability in the built environment with partnerships with businesses and investors across the globe.
The increased discourse surrounding the built environment from the Coalition itself, as well as the 2030 Breakthrough Outcomes for the Built Environment and Race to Zero, signal substantial movement in the market. In conjunction with increased regulations and sustainable building standards, the message for the real estate sector is clear: invest in climate resiliency and climate solutions or get left behind.
For some investors, this means looking toward new and emerging markets. Demand for climate resilient buildings will only continue to grow, especially as public capital is mobilized through initiatives like the loss and damage fund.
For other investors, it encourages evaluating existing activity and strategy in more established markets. We will continue to see substantial developments in sustainable building regulations, energy efficiency standards, and requirements for low carbon construction materials and processes. Embodied carbon disclosure requirements in Sweden, minimum energy efficiency standards in France, and sustainable finance regulations in the EU and UK, are just a few actions taken as countries aim to meet their Paris Agreement commitments. Implementing responsible and sustainable investment strategies now will protect against the risk of stranded assets and secure opportunities in an ever-growing market.
Longevity Partners can assist you in navigating rapidly shifting policies and developing robust ESG strategies for your funds. Get in touch with our team today to find out more.