Reflections on COP28

As COP28 has drawn to a close, I am back home in the UK digesting the outcomes and final text that all Parties have agreed on, so I wanted to share my reflections on what has been achieved and what it means for investors.

COP28 was off to a strong start and no time was wasted on agreeing the 160 agenda items promptly (which usually takes many hours if not days!). The COP28 presidency delivered an opening speech that showed ambitious determination to make make history with COP28 being the one that ‘changed the game’ to keep the ‘north star’ of 1.5C within reach and deliver a strong response to the Global Stocktake report which said we are far off track from a 1.5C path.

What was the mood?

Being on the ground, what really stood out for me was the passion, enthusiasm and ambition put forward by many countries, corporates and organization – With an estimated 85,000 attendees present, you could feel the positivity and buzz, particularly in the first week of COP. It was great to participate in a number of events in the blue zone as well as investor focused side events through the Global Ethical Finance Initative (GEFI) and immerse myself in climate discussions with many different COP participants.

Then things started to get a bit more tense as wording around fossil fuels continued to be debated. The COP28 president made some controversial comments around what the science says about reducing fossil fuels and an OPEC letter was leaked encouraging countries not to accept any wording related to fossil fuels in the final COP28 text, arguing the focus should be on emissions given fossil fuel emissions could still be abated through technology.

There was also criticism that over 2500 oil & gas lobbyists joined COP28, but in my view, just because participants are associated with an energy company, we cannot assume their intentions are to derail and block progress. We need all sectors at the table to be able to develop solutions to accelerate the transition to net zero, especially energy.

So, did this COP change the game and deliver a successful outcome?

Views on this will always differ among countries and participants - any pledge of funds won’t be high enough for some and the wording will not be strong enough for many. But in my view, it has been a success.

We have seen topics addressed at COP that have never received the same level of attention before – namely health, food, nature and a socially just transition. Commitments were made that have the potential to substantially reduce emissions, for example tackling methane emissions, tripling renewables by 2030 and a total of $83bn climate finance pledged. Overall, we saw 175 announcements come out of COP which are all listed here.

The loss and damage fund was announced on Day 1, a positive and welcome surprise to many (but of course the just over $700m pledged for it are just a drop in the ocean). Day 2 saw the launch of the Declaration on food & agriculture which received support from over 150 countries agreeing to embed food in their climate plans and take action to tackle the emissions related to food production, representing nearly a third of global emissions. The Just Transition Work Programme was launched with a strong focus on a fair and equitable transition for people. These are all steps that show progress in the right direction. And for the first time ever, after lengthy debates and negotiations on the most contentious topic of this COP, fossil fuels are mentioned in the final COP28 text highlighting a need to transition away from them.

The final Global Stocktake text calls on parties to transition away from fossil fuels in energy systems “in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”. It also calls for the phase out of inefficient fossil fuel subsidies. Many agree this sends a strong, unprecedented signal - but of course, there are also loopholes that can be used by countries as ‘excuses’ for lack of action, for example over-reliance on carbon capture and storage to keep fossil fuels going. Over 100 countries supported a fossil fuel phase out language in the text which was initially included and then dropped in the final version. It’s very difficult to set a high, ambitious bar when you need all Parties to agree, so any outcome will reflect the minimum common denominator and will not be strong enough for many vulnerable, developing nations.

The commitment of 117 countries to the Global Decarbonisation Accelerator has the potential to shift the pace and scale of the transition, for example by committing to triple renewables and double energy efficiency by 2030, and the creation of the Industrial Transition Accelerator co-funded by Bloomberg, creating new investment opportunities. There was a strong focus on transition finance and the need to consider a toolbox of solutions and financial instruments to transition every sector and region, and not leave heavy emitting industries behind.

A key area of positive progress is food & agriculture. In addition to over 150 countries signing the Declaration mentioned above and committing to integrate food into their climate plans by 2025, $2.5bn has been committed to tackle food related climate issues. On Food Day, the UN FAO also launched their roadmap to tackle SDG 2 (Zero Hunger) within the boundaries of the 1.5C goal, setting milestones for 10 areas of focus – a sensible start, but lots more to be done to flesh out the details. In addition, 5 countries joined forces to launch an Alliance to lead on the transformation of the food system. However, it is disappointing that the final official Global Stocktake text does not sufficiently refer to food & agriculture action to be firmly embedded in NDCs, it only ‘ encourages the implementation of integrated, multi-sectoral solutions, such as land-use management, sustainable agriculture, resilient food systems, nature-based solutions and ecosystem-based approaches,…’

Another announcement that is important for investors is the alignment of standards and integrity for voluntary carbon markets, which was announced on COP finance day. The VCMI, ICVCM, GHG protocol and SBTi have joined forces to develop an end-to-end integrity framework for carbon credits and six different carbon credit verification providers have also agreed to work together to harmonise standards. This will help address the continuous challenge around integrity and quality of carbon credits and enable the growth of carbon markets that need to be part of a holistic solution to mobilising capital for net zero.

I think insufficient progress was made on two items: Firstly, delivering ambitious progress on adaptation action & finance with discussion on the Global Goal on Adaptation being kept very quiet and secondly, agreeing on the new climate finance goal. The latter is to be updated from the current $100bn annual promise from developed to developing countries and will come into effect in 2025, but it was mainly agreed to hold meetings on this in 2024.

Overall, my view is that COP28 was a success in many ways.

The Presidency showed determination and ambition to address fossil fuels in the final text for the first time and deliver outcomes that aim to keep the 1.5C north star within reach. Whether this will really happen, will depend on what happens after COP28 and how the pledges will be put into actions and binding policies.

A peak and drop in emissions is the only thing that will ultimately demonstrate that credible action is being taken.

However, to be in line with a 1.5C pathway, we need to reduce emission by 43% by 2030 (vs 2019) and an initial assessment of pledges undertaken by the Energy Transition Commission suggests that even if COP28 pledges were supported by all countries and implemented in full with strong policies behind them, we would not be in line with where emissions need to be for 1.5C by 2030. Much more is to be done to close the ambition gap – and ultimately deliver on that ambition.

Why does it matter for investors?

In simple terms, signals and policies around climate action shape investment risks and opportunities and also provide the foundations for delivering on net zero investor targets. The signal from COP28 to investors is that 1.5C remains the ambition and that a transition away from fossil fuels is required. If (big if) pledges are implemented with credible policy actions that set the right financial incentives, for example to transform food systems and triple renewable energy capacity, this can lead to new investment opportunities and help mobilise private capital.

At the same time, implications of a transition away from fossil fuels can increase the risk of stranded assets that investors need to carefully consider. Another opportunity that may become more attractive to investors is the involvement in carbon markets once the announced end-to-end integrity framework is delivered to tackle criticism around the quality and effectiveness of carbon markets and offsets. Lots to look out for as we go into 2024 to understand which commitments will make a difference to investors in practice.    

What’s next?

Irrespective of the final text that represents the minimum common denominator, countries will go away and start working to update their nationally determined contributions due in early 2025 and (hopefully) delivering on the commitments and initiatives launched. The COP process cannot just be a cycle of COPs where new initiatives continue to be announced, they also need to be completed with real world impacts such as seeing progress on KPIs that tell us we are getting closer to net zero and not further away. The latest State of climate action 2023 report highlights 42 indicators that could be used for this – only one of them is currently on track, the % sale of electric vehicles.

COP29 will be held in Baku, Azerbaijan and in usual COP fashion, it will probably be another year before we hear more on the delivery of the initiatives and progress on other outstanding actions - at which point we will hopefully have a few more 'on track' indicators in the next 'State of Climate Action' report.