Nordea’s climate experts on what to expect from COP27
Lead — As the upcoming COP27 summit approaches, the focus on climate financing becomes paramount amid rising energy and food prices, as highlighted by Nordea's experts. They underscore the need for developed nations to deliver on their USD 100 billion climate finance commitment and to address loss and damage aids specifically for African countries facing climate emergencies. According to their insights, the geopolitical landscape, particularly the Ukraine conflict, poses challenges to global cooperation on climate action, emphasizing the stakes for future financial commitments in the climate finance arena ahead of key domestic indicators. Per the full note , tracking these developments will be essential for understanding broader market sentiment.
What the desk is arguing
The desk posits that COP27's outcomes could significantly influence global FX markets by dictating future sustainability commitments and climate financing levels. With developed nations on the hook for substantial financial pledges, how they respond will likely shape investor sentiment and affect currency valuations.
Nordea's experts emphasize that less than 20 out of nearly 200 countries have updated their climate commitments since COP26, indicating a lag in actionable progress. The commitment to increase adaptation finance—pivotal for African nations—is critical, especially as extreme weather events amplify the urgency for meaningful climate action.
Where it sits in our coverage
While our coverage reflects a target consensus range leaning towards the higher end at 1.075, JPMorgan's position at 1.10 signifies alignment with the desk's outlook for sustained bullish sentiment depending on climate actions. Conversely, BofA suggests more caution at 1.04, reflecting concerns over global economic stability amid these geopolitical tensions.
How other firms see it
Aligned firms such as JPMorgan and others support a view that emphasizes taking bold climate action as central to future FX dynamics. In contrast, BofA expresses a more restrained view, highlighting apprehension over rising geopolitical risks and commitment delays.
This perspective could influence the EUR/USD trajectory, especially as market participants monitor signals from central banks regarding monetary policy adjustments in light of climate financing developments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The COP27 summit will focus heavily on fulfilling climate finance commitments amid current geopolitical tensions.
- 02Developed countries are under pressure to provide USD 100 billion in climate financing, crucial for global market sentiment.
- 03Climatic pressures and adaptation costs are becoming central themes for FX traders as they evaluate risks.
- 04The participation of major economies like the US and China at COP27 will critically influence market expectations.
Market implications
Watch for significant shifts in investor sentiment as COP27 outcomes are revealed, specifically regarding the $100 billion climate finance commitment and adaptation financing pledges. A successful resolution could bolster currencies tied to Asian or emerging economies, highlighting the interconnectivity between climate action and market performance.
Risks to this view
A failure by developed nations to meet their climate financing commitments could severely undermine investor confidence, leading to currency depreciation. Additionally, any exacerbation of geopolitical tensions, particularly related to the Ukraine conflict, could distract from climate discussions and further destabilize financial markets.
Sustainable banking Nordea’s climate experts on what to expect from COP27 28-10-2022 This year the UN climate summit, COP27, will be held in Sharm El Sheikh in Egypt. This will be the first African summit since 2016, and the talks will be held amid rocketing energy and food prices, global energy crisis, extreme weather events all around the world and overall difficult geopolitical circumstances. We have interviewed Nordea’s climate experts Stefan Henningsson and Matti Kahra on what they expect will be the outcome.
This year’s summit comes at a turbulent time; how will that affect the level of participation and engagement? “Egypt has urged the participating countries to set aside tensions over the Ukraine war for the sake of focusing on the climate crisis and implementation of targets. That means more action from countries on mitigation, and especially finance and adaptation, which are key issues for African countries,” explains Matti Kahra. “In the spotlight we’ll see if developed country parties will succeed in delivering at least USD 100 billion in climate finance this year. And also if there will be delivery on the adaptation finance commitment from the Glasgow Climate Pact to at least double that specific amount by 2025.
The host continent of Africa will most likely raise the issue of loss and damage help when countries cannot adapt but need climate emergency relief to also become a formal part of the negotiations,” says Stefan Henningsson and adds: “Currently, 90 heads of state have confirmed their attendance at COP27. A lot of focus is now on what the world´s biggest economies, the US and China, will do and say.” Stefan Henningsson, you were at the summit last year; what is the status on the commitments from then? “It could be better. The Glasgow Climate Pact has called on countries to “revisit and strengthen” their commitments for COP27.
So far 20 countries of around 200 have submitted an update, with Australia’s update being the most significant. More needs to be done to close the gap during this crucial decade, with the main focus on the major polluters’ announcements on taking things further. Without increased political action, the world is heading for global warming of 3.2°C by the end of the century according to a new IPCC report this year .
The UN Emissions Gap Report 2022 released on 27 October will give the latest on where we are, including recent pledges,” says Stefan Henningsson. Matti Kahra, what themes or initiatives will you look for? “I hope we will see more detailed implementation plans following the initiatives signed at last year’s summit. It will be interesting to zoom in on, for example, The Glasgow Leaders’ Declaration on Forests and Land Use where 145 countries pledged to halt and reverse forest loss and land degradation by 2030 and The Global Methane Pledge where more than 100 nations committed to collectively cut emissions of methane , a potent greenhouse gas, by 30% by 2030.
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