As COP28 has drawn to a close, Eva Cairns, head of sustainability insights and climate strategy at abrdn reflects on what has been achieved and what it all means for investors.
“On the whole, it’s 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 U-turn 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 needs to be done to close the ambition gap.”
COP28 got off to a strong start, with the presidency opening speech indicating determination to make history as the COP that ‘changed the game’ and to keep the ‘north star’ of 1.5C within reach while delivering a strong response to the Global Stocktake synthesis report, which said we are far off track.
Did it deliver?
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 to 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 – 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.
The loss and damage fund was operationalised on Day 1, a positive and welcome surprise to many (but of course the just over $700m pledged for it is 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. 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 all parties need to be in agreement, so any outcome will reflect the minimum common denominator and will not be strong enough for many vulnerable, developing nations.
Less progress was made in delivering clarity on the Global Goal on Adaptation and the new climate finance goal. which is to be updated from the current $100bn promise to developing countries from 2025. There was agreement to hold meetings on this in 2024.
What was the mood at the conference?
What really stood out for me was the passion, enthusiasm, and ambition. With an estimated 100,000 attendees present, you could feel the positivity and buzz, particularly in the first week.
Things got 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 they 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 & food.
Why does this mean for investors?
In simple terms, signals and policies around climate action shape investment risks and opportunities and 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.
There’s 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. In the words of HE Razan Al Mubarak, 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 visible such as seeing a U-turn when it comes to the KPIs that tell us we are getting closer to net zero and not further away.
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.
