COP27: Promises promises…but where is the progress?

By: Jack Dominy

17/11/2022

The overriding message emerging from talks at COP27 is one of ‘more promises, but a lack of real action’. According to scientists, global carbon dioxide emissions from burning fossil fuels are set to increase by around 1% this year, which is reflective of the lack of progress made by countries towards combatting the effects of climate change.

This finding is highlighted by a report from the Global Carbon Budget, released during the UN summit at Sharm El Sheikh, stating that CO2 emissions are set to rise across the world in 2022 compared to last year.

It seems that the promises made by both investors and companies to help cut carbon emissions are falling short. There has also been little evidence of wealthy, major historical emitters actually cutting production, in spite of the principle of “common but differentiated responsibilities” enshrined in the UN climate treaties they have signed up to.

There are a variety of reasons that could be causing this shortfall, for example:

1. Since the Russian invasion of Ukraine in February, many European countries have had to turn to burning coal as a source of energy due to Russia’s restriction of natural gas supplies, sending global gas prices soaring.
2. There are still large shortfalls in renewable energy funding, particularly in developing countries. It is cheaper to use fossil fuels.
3. There has been an increase in use of oil in transport as the world opened up post COVID-19 pandemic.
4. Some countries, the Gulf States in particular, have economies that are highly dependent on fossil fuel revenues. The energy transition could bring an element of “risk” to these oil exporters.

This general anxiety around the energy transition was very much emphasised by the results of an independent survey we recently conducted in preparation for attendance at the London Investor Show 2022. We asked 131 UK private investors their thoughts on current investment topics and their attitude towards the current market. When asked which sector which will offer the best investment opportunity over the next 12 to 24 months, the energy sector was by far the stand-out choice, as demonstrated by the chart below. However, and rather surprisingly, nearly half of those who chose the energy sector saw the opportunity in traditional energy. A case of better the devil you know perhaps?

These results are based on a survey conducted among 131 private investors, with fieldwork taking place 27^th September – 7^th October 2022.

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