COP 28: A historic moment, or another round of unfulfilled promises?
The 28th United Nations Climate Conference of the Parties (COP28) concluded on 12 December 2023, having been held in Dubai, UAE.
This COP was unique in that the first Global Stocktake concluded at the event, whereby progress towards the Paris Agreement commitments was reported. We are well off-track for a 1.5°C average global temperature rise, having already seen a 1.3°C rise and are on track for 2.5°C1 of warming (real world action based on current policies).
The “historic” outcome of COP28 is that a “transition away”2 from fossil fuels was for the first time agreed in climate negotiations. Days of discussion were had over which words to use to describe the world’s intention of moving away from fossil fuels, with many disappointed that the text was amended to remove the wording “phase out” of fossil fuels.
In this blog, we summarise the key outcomes across the Four Fs:
- Fast-tracking the transition to a low-carbon world
- Fixing climate finance
- Focusing on people, lives and livelihoods
- Full inclusivity
“An agreement is only as good as its implementation. This historic consensus is only the beginning of the road.”
Sultan Al Jaber, December 2023 (COP28 President, CEO Abu Dhabi National Oil Company)
1. Fast-tracking the transition to a low-carbon world
Goal: Keeping 1.5°C within reach and focusing on near-term action.
An agreement to ‘transition away from fossil fuels in energy systems… so as to achieve net zero by 2050’1 which is an earlier net zero target than many large countries have currently committed to.
The launch of the Global Decarbonisation Accelerator, which includes a reinvigorated focus on methane and other non-CO2 gases.
A commitment was made to triple renewable energy supply, double annual energy efficiency improvements and triple nuclear power by 2030.2
Clear progress has been made across multiple decarbonisation facets however doesn’t guarantee that the Paris Agreement remains within reach.
Whilst fossil fuel wording was debated, the focus needs to be on action; we know that policies relating to fossil fuel supply aren’t reducing.
Fossil fuels will be phased out by actions that destroy demand for them, reinforcing a need to focus on financing clean power systems, electric vehicles and more.
Net zero focus: investors should continue to consider setting their own ambitious targets, in line with Paris.
Fossil fuel exposure: Investors should understand their exposures in this space given the negative signal on growth prospects.
Renewable energy: The commitment may open considerable funding opportunities for investors to access to low carbon infrastructure, or renewable technologies. Investors should consider global opportunities especially in light of the focus on supporting developing nations to decarbonise.
2. Fixing climate finance
Goal: Close the mitigation, adaptation, and finance gaps, making funding available, accessible, and affordable. Change the narrative from climate investment being a burden, to being an opportunity.
Contributions to the “loss and damage” fund fell short of the finance eventually needed to support developing countries. The fund aims to provide financial assistance to nations most vulnerable to the negative consequences that arise from the unavoidable risks of climate change.
A focus on vulnerable countries included the agreement to innovative financing mechanisms for debt burdens and climate-resilient debt clauses (such as the agreement to pause debt when a vulnerable country is hit by natural disaster).
Countries have failed to meet climate finance commitments, and this is now also being reflected in the latest “loss and damage” fund. Whilst we’ve seen a step in the right direction, significant additional capital is required; accountability mechanisms may be required to boost action.
The World Bank announced a programme to encourage standard setting and working collaboratively with countries to increase access to carbon markets.3
With the verification of voluntary carbon markets hopefully increasing in rigour, this will become an increasing investment opportunity for investors, to focus on e.g. nature-based solutions to develop high quality credits to support global decarbonisation. This may be explored in support of achieving net zero, or as a source of portfolio return.
3. Focusing on people, lives and livelihoods
Goal: Policy commitments from the public and private sectors to put nature, lives and livelihoods at the heart of the climate agenda.
Following the first ever Health Day at COP, the World Health Organisation endorsed a climate and health declaration, sounding the alarm on the severe health implications of climate change, focussed on sustainable agriculture and resilient food systems.
The Global Stocktake reinforced the “urgent need to address… the interlinked global crises of climate change and biodiversity loss… as well as the vital importance of protecting, conserving, restoring and sustainably using nature and ecosystems for effective and sustainable climate action”.4
We increasingly recognise the interlinkages between climate, nature and social issues and so we are pleased to see increasing commitments in this space.
We however note increasing understanding is required of the financing expectations to achieve targets.
Deforestation: Investors should seek to understand their exposure to deforestation, within portfolio company supply chains (whilst recognising data challenges) and agree policies to reduce exposure over time (in line with 2030).
Social implications: Social risks may be exacerbated by investors’ climate actions, for example, divestment policies should consider the Just transition (ensuring the whole of society are brought along in the pivot to a net-zero future).
4. Full inclusivity
Goal: Inclusive climate action and solidarity.
There was particular focus on the role of children and youth in tackling the climate emergency, and the need for education as a solution. Part of this included the appointment of a Youth Climate Champion.
An initiative to provide funding directly to Indigenous People, ensuring no less than 85% of money reaches Indigenous territories and communities.
The establishment of inclusive roles and partnerships are expected to incorporate views throughout the implementation of the COP commitments.
We hope this brings diversity of thought and experience and should be further encouraged in the ambition for a Just transition.
It is clear that the oil and gas industry were involved in COP discussions (with the COP28 President being the CEO of the Abu Dhabi National Oil Company), this aligns with an approach of engagement rather than exclusion.
We know that climate action goes hand in hand with issues within the social and nature space.
Investors should ensure their climate-related policies, targets and investment strategies consider social and nature impacts and seek opportunities within these spaces.
In Q1 2024, Isio will publish a paper discussing how investors can implement multiple ESG objectives to tackle these issues.
Where do we go from here?
This year’s COP has seen double the number of announcements made versus those made at COP27, demonstrating some ramping up of ambition.
However, as ever, we need to see transparency and accountability for implementing these agreements.
Whilst COP28 has come to an end, what really matters is the actions taken between now and COP29 in Baku, Azerbaijan, and investors have a part to play during this time.
Head of Sustainable Investment