Reaching consensus at COP28 was an uphill battle and many wish a bolder agreement had been achieved. However, the final deal did go further than ever before by referencing a transition away from fossil fuels.
We welcome the commitment to both triple renewable energy generation capacity and increase the rate of energy efficiency improvements. We were also pleased to see the US$700m pledge to kick start the ‘loss and damage fund’ supporting developing countries to manage the impact of climate change.
COP28 was much anticipated with many speculating that it would prove the most important ‘Conference of the Parties’ since the Paris Agreement of COP21 in 2015. However, going into it, we had mixed expectations.
COP28 was significant due to the completion of the first Global Stocktake, the most comprehensive climate data analysis undertaken so far. Aimed at better understanding whether countries are collectively making progress towards meeting the goals of the Paris Climate Change Agreement, to limit temperatures to well below 2°C and as close as possible to 1.5°C below pre-industrial levels. The result of the Global Stocktake showed the scale of the challenge and was expected to motivate members to focus attention on plans and commitments for the much-needed climate action. In particular, the 2023 Intergovernmental Panel on Climate Change report showed that the world was now on course for a 9% rise in greenhouse gas emissions by 2030 (from a 2010 base). An alarming figure, far off the 45% reduction required by the Paris Agreement by that point.
The event was also surrounded by controversy. It was hosted in the United Arab Emirates, the seventh largest oil producer in the world. This was exacerbated by the choice of president-designate of the climate summit, Sultan Al-Jaber, the CEO of the United Arab Emirates’ state oil company. The conflict of interest was unquestionable, leaving it unclear whether he would be able to impartially oversee discussions on a global fossil fuel phase-out agreement. Fuel - pun-intended - was added to the fire when leaked documents suggested the UAE intended to use the summit for oil deals and the situation worsened shortly afterwards when, in a live online event, Al-Jaber claimed there was no science behind the requirement to phase-out fossil fuels to reach 1.5°C.
A strong start?
There were some encouraging early signs though. In the lead-up to the event, the USA and China, the two largest polluters, signed a joint statement to accelerate the rollout of renewable energy. This was of great significance, as it signalled that stretched diplomatic tensions may be overcome and countries would indeed find ways to collaborate effectively. Once the summit finally kicked off, on the first day, more than US$400m was pledged to the important ‘loss and damage fund’, designed to support developing nations deal with the effects of climate change. Whilst the final pledged amount of US$700m remains a fraction of what is expected to be required to support the developing nations completely, it is a step in the right direction.
The steady progress continued with over 100 countries and 50 fossil fuel companies making commitments as part of a ‘Global Decarbonisation Accelerator’. The countries agreed to triple renewable energy generation capacity and double the global average annual rate of energy efficiency improvements. While the fossil fuel companies, representing over 40% of global oil production, committed to net zero by 2050 for their own emissions and made a methane (an extremely potent greenhouse gas) reduction pledge. The International Energy Agency stressed these pledges are not sufficient to constrain global warming to 1.5°C, but a further steady step in the right direction.
Fossil fuel “phaseout”?
With time starting to run out, seemingly all focus turned to the topic of fossil fuels and whether consensus could be reached for committing to their “phaseout”, beyond a softer “phasedown”.
Fossil fuels are the most high-profile topic when considering global warming, and for good reason. With approximately 65% of all greenhouse gas emissions released when burning fossil fuels, it is at the core of the global climate challenge. It is important not to forget that fossil fuels have played a crucial role in powering technological advancement for the last 150 years, leading to economic growth and improved living standards for many. This has, however, come at a cost and the link between the emissions released when they are burned, and climate change, can no longer be disputed.
Achieving unanimous agreement for a commitment to phaseout fossil fuels proved challenging. Most nations provided strong backing for it, while others, led by Saudi Arabia, pushed back hard.
The countries represented at COP28 are diverse. There are developed and developing economies. Those with windy turbine-primed coastlines, alongside petrostates. Exposed island nations, alongside those with relatively lower vulnerability to the effects of climate change. And everything in between. Consensus is difficult to achieve at the best of times, but with such vastly different exposures to both the economic benefits of fossil fuels, and the devastating impacts to which they contribute, it is perhaps no surprise that agreement on the boldest action proved challenging.
After late night negotiations passed the scheduled end point of COP28, it was announced that a final deal had been agreed. The final text included new wording, “calling on parties to contribute” to take actions that include “transitioning away from fossil fuels”. Hardly an ironclad commitment to phaseout coal, oil and gas. However, it is the first-time fossil fuels were included in a COP final agreement, so, that is progress. As ever, the devil will be in the detail as stakeholders scrutinise the agreement in the weeks and months ahead.
As the negotiations complete and COP28 draws to a close, some will point to the fossil fuel “transition” commitment, emission reduction pledges and initial loss and damage funding as successes. The most vulnerable countries, though, may be wondering if the ‘steady progress’ is too little too late. And, in my view, it is ever more evident that the diverse make up of represented countries means reaching COP consensus on the boldest action is probably not feasible. Progress is progress, but we should perhaps temper our expectations for COP29, hosted by petrostate Azerbaijan.
Wins for sustainable investment?
Whilst the final text may not be as ambitious as many had hoped, there are plenty of positives from a sustainable investment perspective. Perhaps not all, but most countries unequivocally recognise the link between the burning of fossil fuels and global warming. Those countries overwhelmingly recognise the solution - or at least a significant part of it- is a transition to renewable energy sources. The transition is very much underway and commitments to triple generating capacity are an encouraging sign of further momentum and investment. Similarly, energy efficiency is another critical component to decarbonise the economy and renewed focus on these areas is welcomed.
The transition away from fossil fuels underpins our work to identify attractive investment opportunities to benefit from efforts to decarbonise the economy, namely across our “Clean Energy” and “Resource Efficiency” investment themes.
For further information on our approach to sustainable investment please don’t hesitate to contact the team.
Toby Rowe
Sustainable Investment SpecialistClimate Assets Funds
The Climate Asset Funds invests in companies that make a positive contribution to the world, with a strong underpinning of ethical values.