The wave of comments post-COP28 could easily leave some overwhelmed when it comes to volume, but underwhelmed when it comes to actual outcomes, and the question of what the global stocktake actually delivered on the pace of the climate transition? Looking from afar, existing, and emerging trends are evident in the results of this COP, even if it did not go as far as many would have liked.
However investors and corporates wrestling with the implementation of their net-zero directions should be heartened. Like Paris in 2015, where global consensus was finally reached on limiting temperature outcomes, and Glasgow 2021 which administered vital life support to the then ailing 1.5C ambition, the Dubai commitment to ‘transition away’ from fossil fuels will be widely cited and referenced, adding another foundation to climate policy and giving certainty for investment directions.
Future COPs will strive for further action and will be serially debating how to strengthen the language to ensure that they include a fossil fuel phase out. Civil society and the underlying credibility of the UNFCCC process will demand no less.
The headline commitments to triple clean energy investment and double energy efficiency investment have garnered a share of the headlines. They should also garner similar attention from investors. Pressuring national policymakers to deliver on the implementation structures and underlying policies to ensure that more capital can now flow, should now become a top line agenda item for investor groups.
The incredibly complex interplay between land use, agriculture and nature-based solutions and the wider contribution to emissions mitigation is clearly on the agenda, having grown its share of voice particularly since Glasgow. This remains a relatively new area of focus for many investors and corporates in their net-zero considerations and one where competing demands are still in the earlier stages of identification, particularly compared to the decades-long and relative conceptual simplicity of energy transition: ‘less of this – more of that.’
The cumulative impact of the plethora of other announcements, initiatives and coalitions will take some time to untangle, but they have a common theme, a growing web of partnerships around generating more private investment in climate solutions, representing in part deepening expectations on global capital and institutional investors.
The divergence between capital availability, the ease of application and the pipeline of projects in developed versus emerging economies is now evident in various forecasts and scenarios on when global net zero will be reached. Within the COP process and in multilateral forums, reforms on sustainable finance and measures to support MDBs and DFIs moving further along the risk spectrum and de-risk aspects of transition and climate investment, particularly in emerging and developing economies is part of the response. Put simply we cannot address climate change, without capital moving from the global north to the global south.
Developments at COP will likely lead policymakers to increasingly focus on investors to ‘show us the money.’ Especially following new commitments to higher emissions targets, due at COP in 2025.
Prudent investors looking to the latter half of the decade will be preparing with their underlying managers and advisers in advance for these opportunities, rather than sitting back, waiting to be asked.
Turning the lobbying tide
COP28 will also, in time, be seen to represent the high-water mark of fossil fuel influence and the insidious lobbying activities of some industry bodies over international climate policymaking. The dynamic has shifted. There’s no going back on the direct insertion of fossil fuel transition into the communique. The international spotlight has never shone so brightly on the numbers and influence of fossil fuel and other anti-climate lobbyists as it did in Dubai.
Does this mean such lobbying will now wither away? No. The Gordian Knot of corporate financial support between fossil fuel industries, other industry lobby groups and politicians has yet to be cut. It’s increasingly clear such activities are a direct economic and political contributor to a disorderly transition. A multiplier of volatility risks that fundamentally are value destructive not value accretive.
Investors need to redouble their individual and collective stewardship activities around recalcitrant corporates, board representation and the funding of lobby groups. Policymakers at national levels and the UNFCCC itself at future COPs must take steps to limit or control the reach of these groups and their activities. Or be forced to. As happened with tobacco industry lobbyists and advertising.
SDGs integral to the answers
The Dubai program and its growing thematic days also reflected that the broad Paris objectives and SDG goals are increasingly intertwined. Separate to the climate focused SDG 13, spread through the other 16 SDGs and 169 indicators are many direct and indirect measures that mirror or address Just Transition principles in emissions reduction, adaptation and resilience. These are of growing importance as the underlying social and civil negatives of a climate-affected world emerge, biodiversity targets remain at grave risk, and water scarcity affects more than 40 per cent of the world’s population.
Investors looking closely at COP outcomes will be aware of this cross-alignment. Those corporations that lead by embedding both net zero and SDG considerations into their transition business models, capex plans and supply chain management can reasonably expect sustained investor support.
Acceleration or Disruption?
Drawing a line of the eight short years from Paris 2015, Glasgow 2021 to Dubai 2023 – taking into account the Trump interregnum – the momentum effect of these three major COPs cannot be discounted. The disappointment in some quarters that the language was not stronger ignores the basics of international climate diplomacy where consensus is required.
Investors re-examining how far to implement their stated investment beliefs around net-zero and transition should take some comfort. National policymakers will furnish higher 2035 emissions targets at the Brazil COP Ratchet in 2025. And as the Inevitable Policy Response continues to highlight, there is a second Stocktake / Ratchet cycle coming in 2028-2030.
The pressure on policymakers through this decade is unrelenting. Tipping points, both climate and social will add another layer.
Undoubtedly serious headwinds are visible. Another Trump presidency could see the US again become a climate and consensus wrecker, not just at COP but as seen at other multilateral fora.
Failures at community, national and international level to spread the costs of climate action fairly could also derail social support for continued action. Popular, widespread support that needs to be continuously nurtured in such a multi decade endeavor, where negative climate impacts will get worse long before they get better. Implementation of SDG goals, buttressed by investor and corporate actions, remains a critical component here.
International conflicts or political backsteps could also derail the troika of continued international consensus, climate and clean tech competition and multilateral / regional cooperation initiatives that have emerged since Paris. These three distinct elements are instrumental to the investment acceleration required to hold later century temperature increases closer to the most ambitious reading of the Paris targets, limit overshoot and collectively addressing those negative climate impacts along the way.
Opportunity in trillions
Despite uncertainties, Dubai outcomes represent opportunity for investors: to reinforce the steps policymakers have taken; to support measures around increasing partnerships, blended finance and sustainable investment; to sideline the negative lobbying forces and risk multipliers; and to best position investment beliefs and portfolio construction for the likely outcomes post 2025, 2028 and 2030.
In 2015 the Paris COP was the first to seriously bring global finance into the process. In the intervening period calculations around the billions to trillions required, where and how they should be applied, have sharpened. Post the coming Ratchet in 2025, investors will be increasingly quizzed on what they are contributing towards climate solutions. By the 2030 Ratchet, if investment remains a lagging indicator, contributions could well become regulated.
It’s better all around for the private sector to take the growing opportunities now available… and get on with it.
Fiona Reynolds is an independent company director, chair of UN Global Compact (Australia) and chair of Finance for Peace. She is former CEO of the Principles for Responsible Investment.