Counting down: the key investments themes that will define COP28

As November has started, the investment community’s attention is starting to focus on the upcoming COP28 summit, taking place 30 November until 12 December in the United Arab Emirates.

Although expectations are modest if not outright low, getting investors on board and pulling in billions in fresh climate investments is exactly what the United Nations Framework Convention on Climate Change's (UNFCCC)'s annual COP summit aims to do: bring signatories together to raise funds and resources to the scale of the climate crisis.

This year's COP presidency, UAE, boldly declared it will lure global investors to its summit in November to 'supercharge' the global climate finance space.

'Mobilising' private investors and introducing reforms within finance powerhouses will be COP28's key priorities, with the aim to hit $100 billion for a long-promised fund to assist poorer countries in their journeys to net zero, the president-designate of COP28, Sultan Al Jaber, has said.

“We must supercharge climate finance, making it more available, more accessible and more affordable to drive delivery,” the royal said recently.

Al Jaber did acknowledge that “expectations for COP28 are high, [but] trust is low."

Key themes

Climate finance and the ability to get private investors to free up more funds for clean energy and other net zero investment initiatives will be a key item, the organisers have indicated.

Some experts have argued that risk-sharing strategies, which blend public and private funds, may make institutional investors more willing to embrace climate projects.

Others, on the other hand, are pushing hard to expand the role of dedicated funds, such as the Green Climate Fund, to increase the flow of capital into the green finance space. 

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Another topic the investment community and other stakeholders will look out for is multilateral bank reform.

Al Jaber is expected to present proposals that will “unleash more concessional dollars, lower risk, and attract more private finance for vulnerable communities.”

Similar ideas were floated last year with the Bridgetown Initiative, which put forward a plan for richer countries and the private sector to provide more money to MDBs.

Meanwhile, watchdogs worldwide have started to make greenwashing a priority and the expectation is this topic will be further discussed at COP28.

The European Union leads the pack in this respect, as it recently implemented the Sustainable Finance Disclosure Regulation, in March. The new regulation aims to enhance transparency of so-called green investing.

In addition, World Bank President Ajay Banga recently endorsed carbon credit offsets and stated boldly that the World Bank could serve as an arbiter for their validity.

Another agenda item many look out for is the sensitive topic of subsidies and the protection of domestic markets. 

A number of green investors, primarily from Scandinavia and Japan, have urged governments at COP28 to make a commitment not to end all forms of support, including subsidies and international finance, for oil, gas, and coal developments. 

However, with many governments, notably those of the largest markets in Europe and North America, keeping fairly quiet on this subject, it is extremely unlikely a breakthrough will be reached. 

Fossil fuels

Ahead of COP28, a coalition of government officials in nearly two dozen countries recently called for a rapid end of fossil fuel investments, piling further pressure on asset owners and other investment actors to wind down any cash flows towards dirty energy.

The group, consisting of climate ministers, secretaries and other policymakers, emphasized in a public letter the importance of limiting global warming to 1.5 degrees Celsius to avoid the "devastating" consequences of exceeding this limit.

They urge investors to transition away from fossil fuel investments to significantly decrease greenhouse gas emissions by 2030.

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In addition, a group of NGOs called on asset owners in the US and Europe to step up their efforts to pressure asset managers into abandoning fossil fuels.

The coalition warned that thirty of the largest asset managers in Europe and the US do not block or drop companies in their portfolios as they roll out new fossil fuel projects, with BlackRock and Vanguard providing 58% of the recent investments in this space.

However, the UAE presidency has made it clear that no breakthrough should be expected. 

Some argue the host has "bowed" to fossil fuel interests, sparking outrage within both the UN and in member nations since it was reported that a number of sensitive issues will not be discussed at the summit, such as fossil fuel burning. 

Investments in renewables

Unsurprisingly, renewables will be high on the agenda. 

But the clean energy space is facing serious headwinds in recent months. Mounting costs, high inflation and regulatory pressures have made investors think twice before allocating capital.

While the UAE plans to avoid bothering investors with "sensitive topics" such as fossil fuel burning, the COP28 presidency did stress that “we need to reduce emissions in the systems we depend on today."

The task is clear: reduce emissions by 43% by 2030 from 2025 levels, and 84% by 2050. At present, however, the global community is less than halfway there.

This prompted Bruce Douglas, the CEO of the Global Renewable, Alliance to say there is no time to waste at COP28.

“Tripling renewable energy and doubling energy efficiency investments is the most impactful commitment COP28 policymakers can make to combating climate change,” he said.

“The rapid upscaling of renewable energy will require policymakers to work hand-in-hand with industry and civil society to urgently implement actions [with regards to] infrastructure and system operation; policy and regulation; and supply chains, skills, and capacities," Douglas said.

"Critically, these areas must be reinforced by low-cost financing and international collaboration.”

Francesco La Camera, the director-general of the International Renewable Energy Agency (IRENE), could not agree more.

“Our mission at COP28 is as clear as it is urgent: We need concerted action to triple renewable power investments by 2030.”

He said this includes addressing "deeply entrenched systemic investment barriers across infrastructure, policy and institutional capacities stemming from the fossil-fuel era.”

La Camera warned that the energy transition is “dangerously off-track, demanding immediate, radical collective action.”

Therefore, this year’s COP28 has been touted to become the most critical climate conference since Paris in 2015, with green investments into the renewables taking centre stage.

“There was a strong wind in the sails from COP27, where the ‘loss and damage’ fund was agreed to finance mitigation for the worst-impacted countries,” said Singapore-based Shivin Kohli, a senior manager for economics strategy at Access Partnership.

“Buoyed by a rising tide from COP26, where the global finance community took centre stage, a slew of investment vehicles and reporting initiatives to mainstream climate in finance were announced,” Kohli added.

However, there is a growing concern that the UAE presidency of COP28 may not go far enough to push for a green finance environment that would stimulate fresh investments.

"Investors that believe in net zero and nature-positive investments should be worried," Kohli said.

“If the UAE fails to make COP28 a success and issue a rallying cry to improve and deliver multilateral climate action, ever-stormier waters lie ahead for meaningful green investment,” he concluded.

Measuring climate risks

Finally, more accurate and precise climate data is another item the finance community has been pushing for as it is increasingly vital for investors and anyone involved in climate-focused investments, for that matter.

"How to measure future climate risks?" is an issue many investors and insurance firms are currently struggling with.

The expectation is that the quality and availability of data will be a hot topic of conversation, albeit a bit more informally, in behind the scenes conversations rather than in formal sessions.

Matthieu Maurin, founder and CEO of Iceberg Data Lab, thinks existing climate policies, investments and supply chains should be “urgently evaluated” in order to curb biodiversity loss and save the planet from a sixth mass extinction.

“Without a global response to climate change and biodiversity loss, there will be little we can do to prevent mass extinction,” Maurin said.

A good example in that respect is deforestation, currently one of the biggest contributors to biodiversity loss, as an estimated 500,000 square miles of land is deforested every 10 years.

“This is wreaking havoc on the world’s natural habitats. Driven by our own demand for deforestation-linked produce such as beef, soya and coffee, the world’s ecosystems are in danger, and quickly heading to a point of no return,” Maurin said.

“Action on deforestation needs to happen now, and it cannot be done without governments and corporations working in tandem,” he concluded.

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