Bonn: five potential COP29 agenda items for investors to watch

More than 6,000 delegates representing 200 countries are gathering in the former West German capital of Bonn for the coming week to deliberate on the agenda for COP29 in Azerbaijan. What is—or isn’t—being discussed at the next COP summit could have significant investment implications.

Putting the Global Stocktake into Action

Bonn marks the first attempt at putting the global stocktake pledge made at COP28 into action through a so-called “global stocktake dialogue,” which takes place on June 6 and 7. A key target of the new dialogue is to share knowledge and good practices on how countries can put their climate plans, known in UN jargon as nationally determined contributions (NDCs), into action.

With time running out to meet the 1.5°C global warming target set by the Paris Agreement, an interesting question will be whether there will be some form of accountability for countries that are investing in new fossil fuel exploration despite explicit warnings by the International Energy Agency. According to the UN Environment Programme, the world’s largest 20 fossil fuel-producing nations, led by the US, Brazil, and Saudi Arabia, are all scaling up their oil output, while Russia, India, and Indonesia are also planning to produce more coal.

Amid growing public pressures, some asset owners have come under scrutiny due to their investments in oil and gas firms that are doubling down on fossil fuels. In the UK, Shell and Equinor have obtained licenses from the UK government to expand oil exploration in the North Sea. In Australia, the energy giant Woodside has come under fire over the planned development of a new oil and gas plant in Western Australia. Woodside’s expansion of fossil fuel production was a major driver behind its shareholders voting to reject the firm’s energy transition strategy at this year’s AGM.

Fossil Fuel Subsidies

A key agenda item highlighting the importance of agenda setting is the question of fossil fuels, a contentious issue that many see as a key obstacle to the energy transition. At last year’s COP Summit, hosted by the United Arab Emirates, a major oil producer, the controversial topic was effectively pushed off the main agenda. However, some countries, notably those that are not major oil producers themselves, are keen to push it back on the agenda.

A coalition of 13 countries, led by the Netherlands, will gather on Saturday on the sidelines of the event to discuss bringing a phase-out of fossil fuel subsidies back onto the agenda. The effort is also backed by Austria, Belgium, Ireland, Spain, Finland, Antigua and Barbuda, Canada, France, Denmark, Costa Rica, and Luxembourg.

It is easy to see why the question of fossil fuel subsidies could become crucial to investors. According to the latest World Energy Investment Report released today, capital allocated to renewables is now twice as high as investments in fossil fuels. Globally, clean energy is expected to attract $2 trillion of investments this year, compared to $1 trillion allocated to the coal, oil, and gas industry.

However, according to the latest IMF figures, the fossil fuel industry received a record $7 trillion in fossil fuel subsidies from governments across the globe. While this pales in comparison to the overall profits made by the fossil fuel industry—the five oil and gas supermajors booked £223 billion over the two years from February 2022 to 2024 according to Global Witness—it nevertheless makes it harder for asset owners to justify divesting from these assets.

Scaling Up Climate Investment in Emerging Markets

Another key agenda item will be to scale up funding for the energy transition. At COP28, participating nations set the lofty goal of mobilizing $100 billion per year to fund the energy transition. But a key challenge appears to be that only a fraction of these new investment commitments arrives in the Global South.

The IEA’s Energy Investment Report shows that while funding for the energy transition in emerging markets (excluding China) is set to hit a new record of $300 billion this year, this represents only 15% of all investments in clean energy.

Commenting on the results, IEA Executive Director Fatih Birol stressed: “The rise in clean energy spending is underpinned by strong economics, by continued cost reductions and by considerations of energy security. But there is a strong element of industrial policy, too, as major economies compete for advantage in new clean energy supply chains. More must be done to ensure that investment reaches the places where it is needed most, in particular the developing economies where access to affordable, sustainable and secure energy is severely lacking today.”

Carbon Offset Clash

Another discussion that will feature prominently is the potential role of carbon offsets, in the wake of the row at the Science Based Targets Initiative (SBTi). While an announcement by the SBTi board to include carbon offsets as part of Scope 3 emission reduction efforts has caused internal backlash, several Western African nations have come out in support.

Burkina Faso, Cape Verde, Ivory Coast, Gambia, Guinea-Bissau, Guinea, Liberia, Mali, Senegal, and Togo have sent a letter to the SBTi, stressing that carbon offsets remained crucial to attract climate finance to emerging markets.

"The SBTi is, rightly or wrongly, the gatekeeper that can unlock finance from corporations around the world that wish to contribute to climate action...at the same time as (and not instead of) taking action to decarbonize their valuation," said Ousmane Fall Sarr, coordinator of the West African Alliance. The Western African Alliance was launched on June 3 at the opening of SB60.

Climate Change Litigation

SB60 could also play an important role in delivering further clarity on climate litigation, according to the Institute for Law and Environmental Governance in Nairobi. Delegates will have to tackle three key challenges, the Institute said. One will be to strengthen the case for causation—in other words, to establish a clear causal link between emissions by a specific company and specific climate damages. Another challenge will be to elevate the standards of care, imposing a “duty of care” on governments and corporations to assist the victims of climate change.

The Institute also said that SB60’s scientific reports can play an important role in raising public pressure, which in turn can help bolster public support for climate litigation.

Last week, the US state of Vermont became the first to enact a law holding oil firms financially accountable for damages caused by climate change. Vermont government officials will take two years to assess the cost of climate damages incurred between 1995 and 2024, with major fossil fuel companies potentially paying billions in compensation.