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What businesses can learn from COP27

Photographic portrait of Victor Chan
Victor Chan

International Director, Global IFRS Services, Ernst & Young Global Limited

4 minute read 15 Dec. 2022
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COP27 saw the announcement of a loss and damage fund for vulnerable nations and the ISSB confirmed it is delivering on its commitments.

In brief

  • Climate change affects everyone in the world and requires a collective response. 
  • Companies increasingly need to have the systems and processes to monitor the impact of climate change, including any government action, on their businesses.
  • COP27 was held in Sharm El-Sheikh, Egypt, in November 2022.

Climate change is indeed a hot topic affecting everyone in the world. Companies now increasingly monitor the impact of climate change, including any government action, on their businesses. The major developments at COP27 relevant for companies were the progress on the establishment of a loss and damage fund, the ongoing debate on phasing out fossil fuels and the latest initiatives by the global sustainability standard setter.

1. Loss and damage finance

For the first time, countries reached a historic decision to establish a loss and damage fund in particular to support for nations most vulnerable to climate change.

The decision to create a loss and damage fund is intended to provide financial aid from a broad
international contributor base to the most vulnerable.

How EY can help

The fund will help developing countries recover from the effects of climate change they are already suffering. While these countries have long had access to financial aid to cut carbon or adapt to global warming, previously there was nothing, for example, for those who lost their homes due to flooding as a result of climate change.


Many details will still need to be ironed out and it may take a while before the fund starts working. It remains to be seen what the criteria for pay-outs are and few rich countries have so far made cash pledges to the fund.


2. Phasing out fossil fuels


The Emissions Gap Report 2022: The Closing Window released by the United Nations Environment Programme warns that action on the climate crisis to date has been inadequate and calls for rapid transformation of societies as the international community is falling far short of pledges to honour the Paris goals, with no credible pathway to 1.5°C in place.


A number of developed countries and larger economies have proposed more concrete steps that would see greenhouse gas emissions peak in 2025, but then limit the global temperature rise in line with the Paris Agreement. However, at the conclusion of COP27, there was no commitment made to phase out the use of fossil fuels.

COP27 fell short of the commitment to phase out fossil fuels.

 The COP27 agreement is in line with, but does not go beyond, the agreement in COP26 last year to accelerate efforts towards the phase-down of unabated coal power and phase-out of inefficient fossil fuel subsidies.

3. Standard-setter developments

In order to support preparers, investors and other capital market stakeholders as they prepare to use IFRS Sustainability Disclosure Standards, the International Sustainability Standards Board (ISSB) has established a new Partnership Framework with more than 20 private and public organisations.

The ISSB’s new Partnership Framework will help to ensure that interoperable standards are delivered
in support of proposedsustainability-related reporting regimes around the world.

The main purpose of the Partnership Framework is to drive the adoption of the globally implementable baseline that is truly inclusive in nature. This is a significant contributor to the aim of increasing private sector finance flows to developing economies.

To maximise interoperability of the respective standards and the alignment of key climate disclosures, the ISSB is working with the European Commission and European Financial Reporting Advisory Group (EFRAG) toward a shared objective to agree on a framework. The ISSB also announced at COP27 that CDP (the not-for-profit which runs the global environmental disclosure platform for corporations) will incorporate the once-finalised IFRS S2 Climate-related Disclosures requirements into its global environmental disclosure platform so that CDP’s voluntary users will disclose data structured to the standard in the 2024 disclosure cycle.

There were more than 35,000 participants at COP27 and, between now and the next COP, climate looks set to remain a dominant global issue. While some may have expressed disappointment at the lack of progress other than the loss and damage fund at COP27, there will only be more pressure for communities, companies and governments to act urgently in a coordinated response to mitigate and adapt amid climate change.

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    Summary

    COP27 saw significant progress in the agreement to establish a loss and damage fund to support nations most vulnerable to climate change. However, it failed to get all parties’ commitment on the fossil fuel phase-out beyond the agreement reached in COP 26 to accelerate the phase-down of unabated coal power. The ISSB’s new Partnership Framework will promote the adoption of a global baseline for climate disclosures. The ISSB also confirmed that the CDP plans to incorporate IFRS S2 Climate-related Disclosures requirements in its global environmental disclosure platform, enabling users to disclose data structured to the standard in the 2024 disclosure cycle.

    About this article

    Photographic portrait of Victor Chan
    Victor Chan
    International Director, Global IFRS Services, Ernst & Young Global Limited
    Develops insights on applying IFRS to emerging accounting issues. Focuses on leases, crypto-assets, investment property and latest standard-setting activities. Enjoys relaxing with family.
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    Assurance

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.