COP28 Expectations and Actions
Investment
“I urge the world to carefully study the global stocktake synthesis report. It is a report card of our collective climate action. And not a good one. COP28 is our chance to make a dramatic course correction.”
-Simon Steill, UN Climate Change Executive Secretary
We are all aware of the risks that climate change pose to global communities as well as investors – we highlighted a number of these risks in our climate blog series over the summer. And so where do we go from here? The latest UN Conference of the Parties to the Convention, COP28, is fast approaching and, within this blog, we provide some insights into what might be expected.
The upcoming UN climate summit COP28 will be held in the United Arab Emirates later this month. The location is controversial given that roughly 6% of the world’s oil reserves are controlled by the UAE government[i], as well as the appointed COP president being Abu Dhabi National Oil Company CEO Sultan Al Jaber. This poses an interesting dynamic and industry reactions have been mixed thus far.
The annual COP provides an opportunity for member countries to determine climate ambition, responsibilities, and action. This COP is unique in that the first Global Stocktake, whereby progress towards the Paris Agreement commitments will be measured, is due to conclude at the event.
Focusing on the Four Fs
Globally, we have thus far not met our agreed climate targets, nor seen enough action taken on climate change. We expect to see a revived dialogue at COP28, with a focus on the “Four Fs”:
- Fast-tracking the transition to a low-carbon world – The conclusion from the Global Stocktake is widely expected to be that the world is well off-track (with some evidence suggesting we are more on track for 2.5°C)[ii] and that countries will have to reset their Nationally Determined Contributions (greenhouse gas reduction commitments) to ratchet up their ambitions. We note however that these are non-binding and will need to be translated into action in order to affect change.
- Fixing climate finance – There was a commitment set in 2009 to mobilise $100bn per year (to 2020) towards the needs of developing countries, which has not been met. This will be replaced by the ‘New Collective Quantified Goal’ (NCQG), with the updated goal to be agreed by 2025, in an attempt to rebuild confidence in the change that is required. The new focus is to support developing countries with the funding of mitigation and adaptation activities as well as loss and damage. Conversations have been held at previous COPs around the importance of adaptation finance (spent on activities tailored to protect against climate risks in specific locations, as discussed in our physical risk blog) versus mitigation finance (which focuses on decarbonisation efforts). We expect the focus on adaptation to grow at this COP.
- Focusing on people, lives and livelihoods –
- COP28 will hold the first Health Day, which will focus on actions for the health system’s response to climate change (it is estimated that an additional 250,000 people die each year due to climate change[iii]) as well as a Relief, Recovery and Peace Day, which will focus on finance for preventing and addressing loss and damage particularly across vulnerable communities.
- With the recent adoption of the 30×30 biodiversity goal (the target to conserve 30% of the planet by 2030, by designating protected areas of terrestrial land, inland water, coasts and marines) agreed at the UN Biodiversity Conference in December 2022, we hope to see increasing alignment between climate discussions at COP28 and wider action on nature impacts and policies.
- Finally, this year’s COP will have a much-needed focus on food and agriculture; the food system is one of the main drivers of climate change, contributing 21-37% of global greenhouse gas emissions[iv]. With such issues as climate refugees, it’s vital that solutions to ensuring equal access to healthy and nutritious food is discussed. Increasing focus on the just transition and the impact on communities will hopefully encourage collaborative efforts towards the same end goal.
- Full inclusivity – Not surprisingly, the COP’s presidency believes that full inclusivity is a “critical enabler to achieving transformative progress across the climate agenda”[v]. Our blog on the efficacy of engagement vs divestment brings to light the need for all agents to be involved in the conversations in order to drive meaningful change, and COP is one of the best opportunities to have these discussions on a large scale. The COP 28 Presidency is encouraging oil and gas majors to sit at the table, to engage them (as opposed to exclude them) from discussions. We support this view because we understand that without the inclusion of the largest participants, the problem cannot be solved.
Mitigation – Climate-related mitigation refers to efforts to reduce or avoid emissions of greenhouse gases. This can be achieved through the deployment of new low carbon technologies, such as renewables or electric vehicles.
Adaption – Climate-related adaption is the process of adjusting to actual or expected changes in the climate system. With natural or man-made solutions used to moderate or avoid harm from physical changes. As well as increase exposure to opportunities from a changing climate.
Loss and Damage – Loss and damage refers to climate-related physical risks impacting on natural and human systems, which have not been avoided through mitigation efforts, or cannot be managed through adaptation efforts.
What will this mean for investors?
Whilst we don’t know where conversations will land at COP28, investors should engage with resulting conclusions and actions. This hopefully means an increasing focus on social and nature issues rather than seeking climate opportunities purely via a ‘low carbon’ lens.
What can investors do?
- Understand the outcomes of COP – investors need to make effort to understand the result of the Global Stocktake and COP more generally, to prepare for likely climate outcomes. The investment industry is watching the outcomes closely and there will be a lot of material produced to help investors.
- Engage with carbon and nature – following an expected increase in attention on the link between climate and nature, investors are likely to need to engage with their exposures to understand their current impact and explore opportunities (perhaps in nature based solutions and carbon capture technology). We hope to see continued innovation in products available to investors.
- Engage with social aspects – in alignment with the focus on people, investors can evaluate their stance on social factors and pursue a greater integration of social considerations. We hope there will be further developments in socially focussed investments in the near term, likely across private and real assets, and we will monitor market developments closely. Our blog on the climate refugee crisis aligns with anticipated discussions around focussing on people, lives and livelihoods. The conversation around the disproportionate impacts of climate change and the need to support those most vulnerable should be brought to the fore in the COP discussions.
- Integrate with a holistic approach – following these engagements, we believe that a joint consideration of E, S and G factors across the investment objective and approach of investors is crucial to ensuring that risks are managed appropriately, given that there are often trade-offs and secondary effects.
Please get in touch if you would like a further discussion on any of the issues raised in our summer climate blog series, or our thoughts on COP28.
This follows a set of climate blogs, touching on the emerging issues in tackling the climate emergency, please see below for these resources.
Cadi Thomas