Spotlight on COP27: Addressing the energy ‘trilemma’

17th November 2022

At a glance

  • The energy trilemma is about how to balance the security and economics of energy supply with its environmental impact.
  • The energy pressures caused by the war in Ukraine mean a move back to carbon-based fuels is inevitable, but COP27 leaders will be working to ensure that the crisis will speed up the move to green power longer term.
  • The investment community is key in the fight against climate change and remains resolute in its net-zero goals.

Leaders meeting at the COP27 climate conference in Egypt must tackle a massive challenge in the shape of the energy ‘trilemma’. Global power markets are experiencing a collision of three great forces, with simultaneous crises in energy security, prices and environmental impact.

In the short term, this trilemma will force a shift back towards carbon-based fuels such as coal and gas. However, in the longer term, it will accelerate the move to clean energy. This is because Western countries must seek climate-neutral ways to reduce their reliance on Russian fossil fuels, which have become so insecure since the start of the Ukraine war.

We wholeheartedly support this acceleration.

What is the energy trilemma?

The energy system is driven by a shifting balance between three pillars: security of supply; affordability, influenced by demand and supply; and the move towards clean energy to reduce the effect of harmful emissions on the environment.

Russia’s invasion of Ukraine has fundamentally affected the first two pillars, making the main supply of natural gas into Europe less secure and fossil fuels much more expensive. In the short term, this will increase demand for coal and gas production outside Russia, with negative impacts for emissions targets as more CO2-producing fuel consumption comes back online.

These stresses should also pressure global policymakers into accelerating the transition to green energy. This will enable them to stay on track with emissions targets while also shoring up energy security. It also pushes technology providers and other businesses in the sector to redouble their efforts to drive through this shift to clean energy.

Countries may also look to increase nuclear-power supply, but this is unlikely to provide much relief this decade. Solutions that produce clean energy and increase efficiency remain vital in reducing reliance on fossil fuels and increasing energy security.

What does this trilemma mean for responsible investors?

The reversion to carbon-based fuels is a setback for investors looking to support net-zero emissions targets. Capital will be directed towards all forms of energy to secure supply. But the pressures created by the Ukraine war don’t change our long-term commitment to climate-positive investment policies; in fact, they reinforce them. We are still working to reduce carbon in investments by 25% by 2025 – and many others have a similar goal, including some fund managers.

Leading asset managers agree. For example, global investment manager Ninety One has said that in the short term, accelerating investment in clean-energy infrastructure – given rising interest rates and increased defence spending – is very challenging for European governments’ budgets.

But longer term, events in the Ukraine should accelerate the clean-energy transition further, and this increases the opportunity for investors to make their money a force for good.

Staying resolute on net zero

COP27 is a chance for leaders to keep building the impetus. More than 70 countries have set net-zero targets, which cover about 76% of global carbon emissions, according to the UN.1

At St. James's Place, we have played our part by signing up to the Task Force on Climate-related Financial Disclosures (TCFD), a framework for firms to disclose their climate-related risks. We have also joined the Net-Zero Asset Owners Alliance. This is part of the Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition of around 500 leading financial institutions that are committing to transitioning the emissions of their financed portfolios to net zero by 2050.2 GFANZ members are responsible for an incredible $130 trillion of assets3 and are helping to fund the journey to decarbonisation.

Such initiatives have helped countries, companies and consumers get a clearer understanding of the urgency and the enormous capital investments required. But the troubling developments since COP26 mean this year’s climate conference is likely to focus on accelerating net-zero goals and attracting more investment to help achieve them.

There have been many vital gains that we need to preserve and accelerate - for example, transport electrification is surpassing expectations.4 Industries such as steelmaking have made significant moves towards decarbonisation.5 Others, such as aviation and shipping, have made progress but need more support.6

More motivated than ever

Petra Lee, Responsible Investment Consultant at SJP, says: “We need to be flexible and respond to events to keep a balance between all three energy pillars. The trilemma will cause short-term pain points. Compromises must be made because, although the environment is a concern, so is people's wellbeing during the cost-of-living crisis.

“We want everyone in the world to have a comfortable living temperature. But the threat to energy security increases the emphasis on using our investments to support clean energy.”

The climate emergency and the imperative to move away from Russian oil and gas will force policymakers and investors to focus on accelerating this transition. COP27 delegates should be more motivated than ever to achieve this.

How do I become a responsible investor?

Responsible investing has a huge role in shaping a better world and building a sustainable future. Learn more about how your money can be a force for good here.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.


1 Net Zero Coalition, United Nations Climate Action, accessed October 2022

2 Our Members, Glasgow Financial Alliance for Net Zero, accessed October 2022

3 Amount of Finance Committed to Achieving 1.5°C Now at Scale Needed to Deliver the Transition, Glasgow Financial Alliance for Net Zero, November 2021

4 Electric Cars Fend Off Supply Challenges to More Than Double Global Sales, International Energy Agency, January 2022

5 This is How the Steel Industry is Forging a Path to Net Zero, World Economic Forum, May 2021

6 Net Zero: Aviation and Shipping, Energy & Climate Intelligence Unit, October 2021

SJP Approved 07/11/2022

Where the opinions of a fund manager are given these are not necessarily shared by other investment managers or St. James's Place.

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