This month’s meeting of the wider cohort of stakeholders in the issues around climate change is a timely reminder of the need to speed the net zero transition, limit the damage in vulnerable countries and improve climate disclosures, writes Thibaud Clisson, Climate Change Lead.
We believe private capital is integral to closing the climate finance gap and that the United Nations Climate Change Conference (COP) 29 meeting is a good opportunity to accelerate the involvement of financial institutions including asset managers.
First held in Berlin in 1995, the annual COP gathering is the primary global forum for climate change negotiations and decision-making. Attendees assesses progress on mitigating climate change and negotiate legally binding obligations for signatory countries to reduce their greenhouse gas emissions.
COP29 will take place in Baku, Azerbaijan, from 11 to 22 November.
What are the key achievements of past COPs?
Past COPs have led to agreements on influential climate pledges and emissions reduction targets, including:
- Kyoto Protocol agreed at COP3 in 1997 – The first legally binding agreement to reduce GHG emissions, set emissions reduction targets for industrialised countries, and establish carbon market mechanisms.
- Paris Agreement, COP21 in 2015 – The perhaps best-known COP agreement, adopted by nearly all attendees, set a goal to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels”. It established the governance framework of nationally determined contributions (NDCs) – countries’ commitments to cut GHG emissions.
- Glasgow Climate Pact, COP26 in 2021 – A call on countries to strengthen their 2030 emissions targets to align with the 2015 Paris Agreement. Most crucially, the pact marked the first occasion where phasing down coal power was mentioned in a COP agreement.
- Loss and Damage Fund, COP27 in 2022 – The meeting decided on funding for countries vulnerable to climate disasters. This was seen as a vital step towards climate justice and was the first formal recognition that the countries least responsible for climate change frequently face its worst impacts. COP27 also saw the launch of the Sharm El-Sheikh Adaptation Agenda, which details actions to be taken by 2030 to improve the climate resilience of such communities.
What was agreed at last year’s COP?
Despite being held in a major oil-exporting country, COP28 in Dubai was perhaps most notable for its accord on transitioning away from fossil fuels. Some commentators were disappointed that the final text sought the ‘transitioning away’ from fossil fuels rather than a full ‘phase-out’.
There was progress on the loss and damage fund: it received more than USD 700 million in pledges.
There was also the Global Renewables and Energy Efficiency Pledge on tripling renewable energy capacity and doubling the rate of energy efficiency improvements to over 4% per year until 2030.
COP28 saw the Dairy Methane Action Alliance on tighter requirements for disclosing methane emissions by dairy producers, the Environmental Transition Accelerator, which could mobilise USD 72-207 billion of private capital for energy transition strategies by 2035, and the launch of the EU Observatory on Deforestation.
It recognised nuclear energy as a transition solution, with leaders from around the world jointly declaring to work on efforts to triple nuclear energy by 2050.
For a full recap on COP28, read our blog post here.
What can we expect from COP29?
Hopes are high that COP29 can deliver meaningful progress in key areas including:
- Climate finance – With international consensus far apart, agreeing on a new funding goal for developing economies could be the main challenge of this ‘finance COP’. Leading policymakers and NGOs deem the target of USD 100 billion annually (agreed in 2009 at COP15) insufficient. Among more than a dozen initiatives revealed by the COP presidency in September is a USD 1 billion climate action fund, funded by voluntary contributions from fossil fuel-producing companies and countries. More creative solutions are likely needed to unlock the required capital – private investors can be expected to play a significant role.
- Article 6 – This section of the Paris Agreement stipulates that countries can cooperate to achieve their climate goals, including through carbon trading. Although few such deals have been reached, Sweden and Switzerland took the first steps towards a carbon trading and removal market. Given the recent concerns over the carbon market, it is important that an internationally recognised standard is agreed upon.
- Loss and damage fund – The focus for negotiators will be to increase the financing committed to the fund. While studies find that USD 400 billion is needed, just USD 700 million was raised at COP28 – a mere 0.2% of the estimated requirement. The fund committee needs to urgently formalise private sector involvement to maximise the fund’s potential.
- NDCs due in early 2025 – Paris Agreement signatories must update their NDCs by 2025 . We expect NDCs to be a key discussion point in Baku. The third iteration of these carbon reduction targets will incorporate findings from the Global Stocktake agreed at COP28.
Policies must become more ambitious
Previous COPs have laid the foundations for impactful global climate action, but at this ‘finance COP’, governments must match policy ambition with ambitious financing.
The climate crisis intensifies the pressure on COP29 to deliver meaningful results. Summer 2024 was the world’s hottest on record as global temperatures soared by 0.7C above the 1991-2020 average. Ocean temperatures have consistently broken records as Antarctic sea ice reaches near-record – potentially permanent – lows.
What can investors do?
We believe investors must engage with policymakers to formulate policies that can unlock private capital to accelerate the net-zero transition.
Indeed, this process has already begun with the publication of the governments’ intention to address biodiversity issues, boost private investment in developing economies as well as mandatory climate disclosures.
A 2003 Climate Policy Initiative study estimates a substantial USD 6.2 trillion is needed every year between now and 2030 to deliver net zero. Global climate finance only exceeded USD 1 trillion for the first time in 2022, illustrating the size of the gap.
We believe private capital is central to closing this climate finance shortfall. COP29 offers a good opportunity to accelerate its involvement.
