Five key investment takeaways from COP27

Amid a challenging year on the path to net zero, COP27 provides some optimism. The Russian invasion of Ukraine and the subsequent energy crisis in Europe have arguably pulled attention away from far-sighted goals like net zero by 2050 to the more near and immediate issue of war and energy security. In markets, value has outperformed growth this year and climate-related stocks have come under pressure as a result.

But, we continue to see policy progress across the EU, US and around the world and, as COP27 makes headlines, demand for decarbonization is clearly growing. Ellis Eckland, energy and renewables expert within UBS Asset Management’s Global Equities team flew to Egypt to take part in the summit and shares his five key takeaways and why there are grounds for optimism.

1. COP is not just for governments, NGOs and policymakers: The shift we saw in Glasgow at COP26 was cemented in Egypt where business was well represented, with participation across a variety of industries. Companies sent significant delegations to seek out opportunities and even do deals with partners at governments and NGOs.
2. Implementation is crucial: Disclosure and delivery are different. At COP27 there was a strong focus on translating pledges and commitments to action and real-world results. This was particularly evident by the large business and private sector attendance as they focus on the grittier details of how to decarbonize.
3. Collaboration between public and private sector is essential: Speaking with many policy makers and government representatives, they were impressed by the progress that companies and finance are making and viewed the involvement of the private sector and future collaboration as essential to drive progress. Policy makers even gave the impression that corporates were now leading decarbonisation efforts in many areas.
4. Creative spirit: COP27 created a ‘Silicon Valley’ like atmosphere for start-ups and other climate investment deals. While many of the headlines focused on marked disappointments like the revision on language around fossil fuels, for those of us at the fringe and in the day-to-day hustle it was encouraging to see a huge number of innovative decarbonization start-ups and entrepreneurs seeking partnerships. The mix of policy makers, NGOs, entrepreneurs, and finance should continue to foster new creative approaches to solving the climate crisis.
5. Growing recognition that the energy transition presents compelling investment opportunities: We need government to set policies that will encourage and enable the energy transition. Once these policies are in place, as they are in the US and EU for example, companies should move quickly to exploit the opportunities created by the new policy frameworks. This will then create opportunities for investors as they identify companies with the brightest prospects. There was a feeling the EU had gotten this process started with strong policy support, but that the US was now accelerating matters with powerful policy incentives like the Inflation Reduction Act (IRA). Business seemed newly energized, with companies discussing new initiatives enabled by or given the green light by the IRA.