Wednesday, 19 June 2024

COP27 has little direct effect on HNWIs

5 min read

By Richard Hartung

Many HNWIs took action after COP26 to reduce the effect of climate change, but despite the expectation that more will be done, COP27 failed to deliver.

  • COP27 started with a call for top billionaires, who each create one million times more CO2 emissions than the less wealthy, to be held accountable.
  • In the end, the event had few tangible results other than an agreement for loss and damage, which was vague at best.
  • The key takeaways for HNWIs were around investment opportunities and there were few if any requirements, at least for now, to change their lifestyles.

After a successful COP26 in Glasgow in 2021 that included commitments by governments and financial institutions to mitigate climate change, the COP27 climate change conference was expected to be the “implementation COP”. A key priority for the president of COP27, Egyptian foreign minister Sameh Shoukry, was to ramp up global efforts on adaptation and resilience in order to address demands for support from the Global South, which is most impacted by climate change.   

High net worth individuals (HNWIs) were likely optimistic that they could contribute to developing sustainability solutions at the event, which kicked off in Egypt on 6 November. Many had taken action after COP26 to reduce climate change, such as Jeff Bezos giving $10 billion more to the Bezos Earth Fund and Bill Gates supporting more innovation with his Breakthrough Energy fund.  

The mood of many HNWIs flipped to one of concern the day after the event started, however, when Oxfam released a report showing that the investments of just 125 of the world’s richest billionaires cause about three million tons of carbon dioxide (CO2) emissions per person every year. That level is more than a million times the average for people with assets in the bottom 90 percent of the global wealth distribution, and the output of 393 million tons of CO2 is almost equal to total emissions from France. Criticising billionaires’ lifestyles and investments, Oxfam called for governments to hold them accountable.

COP27 results were underwhelming

Despite the expectations and the highly-publicised report, COP27 did not become the implementation COP and results were very limited. 

As the World Economic Forum (WEF) said, COP27 did not progress commitments or show evidence of significant action by countries to reduce global emissions further. “COP27 was a missed opportunity and potentially a step back.” While acknowledging a “breakthrough agreement” to provide loss and damage funding for countries hit hard by climate disasters, WEF said other accomplishments were minimal. China and the US restarted talks about climate change, African countries set up an innovative finance model, agricultural firms launched an Agriculture Sector Roadmap, and some countries signed MOUs for initiatives such as requiring new trucks and busses to have zero emissions by 2040.

If anything, the results of COP27 probably disappointed anyone who thought the dynamism of COP26 would continue. While many attendees expected to build on the agreement at COP26 to phase down "unabated coal power and inefficient fossil fuel subsidies," the 636 lobbyists from the oil and gas industry lobbying against change outnumbered delegates from any single country and nations such as Saudi Arabia and China blocked new proposals. A push by the EU to reach peak greenhouse gas emissions by 2025 also failed. Rather than agreeing on new commitments to limit global temperature rise to 1.5°C, the text relating to 1.5°C was weakened by references to “low-emissions” technologies such as some fossil fuels and there was a request for new pledges at COP28. A task group to recommend the criteria for companies for their net zero targets presented recommendations for ten standards, with no requirement to use them. Even the last-minute breakthrough for the loss and damage fund has no agreement about the amount of funding, who pays, or who manages the funds. 

And despite tremendous publicity around the release of the Oxfam report, Oxfam’s closing statement hardly even mentioned the billionaires it had castigated just days earlier and focused instead on results of the conference. “The establishment of a loss and damage fund is a monumental achievement for vulnerable developing countries and communities at the frontlines of the climate crisis,” Oxfam executive director Gabriela Bucher opined. However, “we remain deeply concerned about countries' failure to agree on an equitable and urgent phase-out of all fossil fuels” and COP27 was “yet another forum for politicians and corporates to prop up the fossil fuel industry.”

As co-president of The Club of Rome Sandrine Dixson-Declève blogged, "I fear that COPs are becoming little more than a circus, with the petrostates as the ringmasters and us – civil society, progressive business and financial institutions, heads of state and negotiators from countries wanting climate action – are the clowns."

COP27 has little effect on the wealthy

As they headed home or read more about the event, many HNWIs may have wondered whether they would feel any impact. Few of their private bankers and family offices had direct insights, as these firms were underrepresented. “My concerns around COP27 are that a lot of bank and asset manager CEOs have pulled out,” said Anya Solovieva, global commercial lead on climate solutions at Morningstar Sustainalytics.

With the criticism of billionaires having diminished and few if any proposals for regulations or taxes that hit the wealthy, there was little push after the conference for billionaires to change their lifestyles. Instead, wealth advisory firm Campden said, “all eyes are turning to the super-rich to lead the way in ensuring positive change.”   

Rather than advising wealthy individuals about how to scale back or change their activities, private banks focused on themes for investment opportunities for wealthy individuals that arose after COP27. JP Morgan Private Bank (JPM), for instance, said it expects “a simultaneous boom in both traditional and clean energy over the coming years.” The "Loss and Damage" Fund and new partnerships will act as tailwinds to scale up renewable power such as solar, wind, hydro, geothermal and bioenergy. JPMalso anticipates that enhancing water efficiencies, adapting the built environment, alternative food supplies, vertical farming and micro-irrigation will create robust opportunities for investors.

UBS similarly said it sees “numerous value-oriented opportunities in food supply chains, waste management, and recycling. It suggests focusing on on sustainability improvers – “companies that demonstrate consistent improvement on ESG issues” - as well as sustainability leaders. 

What’s next

Despite expectations after a successful COP26 for substantial progress, COP27 made little headway. There were few if any new regulations or taxes by governments after COP27, so HNWIs can continue to choose lifestyles freely. Given the potentially large investment opportunities, even if they are amorphous, many may instead focus on how to optimise their portfolio by investing or shifting their company to take advantage of chances to mitigate climate change. 


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