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COP28: Pledges aplenty, now for the action

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Published: 15 December 2023

The COP28 climate summit in Dubai ended on a more positive note than had looked likely at one stage, but can all the upbeat talk and ambitious pledges lead to the huge surge in investment needed if climate change targets are to be met?

H.E. Dr. Sultan Al Jaber, COP28 president and other participants onstage during the closing plenary at the UN Climate Change Conference COP28 at Expo City Dubai | Photo by COP28 / Christopher Pike

The final agreement from the COP28 climate change summit in Dubai calling for countries to “transition away” from fossil fuels has been hailed as something of a success in the context of talks whose final phase had looked like it might go badly awry. As ever, the question is now who is going to pay for the necessary measures to achieve that transition, and how fast can that funding be mobilised. 

While much has been made of the resistance of petrostates -whose leaders include Saudi Arabia and summit host United Arab Emirates (UAE) – to any mention of phasing out fossil fuel use altogether in the final communique, the outcome of the summit has been broadly welcomed as an important step towards accelerating the energy transition, albeit with the crucial caveat that a lot more still needs to be done. 

“To those who opposed a clear reference to a phaseout of fossil fuels in the COP28 text, I want to say that a fossil fuel phase out is inevitable whether they like it or not. Let’s hope it doesn’t come too late,” UN Secretary-General António Guterres said in response to the outcome. 

Global Stocktake

The meeting centred on a so-called Global Stocktake of global progress on climate change measures since the signing of the landmark Paris Agreement in 2015, and agreeing on steps to fill the gaps. Results included calls to take action to triple renewable energy capacity and double energy efficiency improvements by 2030, accelerate moves to “phase-down” unabated coal power, and phase out fossil fuel subsidies, with the world’s rich countries taking the lead. Countries were also “encouraged” to produce economy-wide emission reductions targets by 2025 that are  aligned with the aim of limiting global warming to 1.5°C above pre-industrial levels.

“Now all governments and businesses need to turn these pledges into real-economy outcomes, without delay,” UN climate change executive secretary Simon Stiell said in his closing speech to the conference.

Whether that will actually happen is a concern, given pledges made at previous climate change conferences have yet to result in the sort of concerted action required to slow greenhouse gas emissions at a fast enough pace to hit global warming targets. But observers have been encouraged by the positive tone of a summit hosted by one of the world’s leading oil producers.

Alex Scott, programme lead at climate change think tank E3G, said that while the COP28 hadn’t answered all the questions, it had signalled the beginning of the end of the fossil fuel era.

“The proof will be in the delivery – in countries’ next climate plans and the called-for transformation of the wider finance system to deliver the economic shifts needed. These are the central tasks from now on the road to Belem at COP30 in Brazil in 2025,” she said.

A lot may hinge on the relationship between the world’s largest carbon emitters, China and the US, which has been slowly rebuilding in recent months. John Kerry, the US climate envoy John Kerry said at the close of the event that the two countries intended to “update” their long-term climate strategies to reflect the outcome.

Financing shortfall

The need to mobilise both public and private investment to meet the cost of tackling climate change mitigation and adaptation remains as acute as ever, given the huge funding shortfall. 

Kieron Boyle, CEO of the UK-based Impact Investing Institute, who attended the summit, told Impact Investor: “The current reality is that we are falling short, achieving less than 20% of the required $4trn (€3.64trn) in climate finance annually, particularly in emerging markets. Developed countries need to fulfil their commitment to jointly mobilise $100bn in climate finance, a small fraction of the overall total, but one that continues to be unmet.”

Key themes from conversations with leaders in the financial services industry, regulators, and policymakers at COP28 included the need for more effective capital, greater collaboration among financial market actors, governments and civil society, as well as improved risk-sharing mechanisms between the public and private sectors, Boyle said.

Much of the heavy lifting in capital mobilisation will need to be via mechanisms such as blended finance and catalytic capital. Funding and guarantees from developed world governments and multilateral development finance institutions to leverage much larger flows of private finance into climate change investments is seen as crucial, especially in low-income countries, where perceptions of high investment risk are blocking private capital flows. 

To that end, the governments of Germany, France and Japan, the African Development Bank and other financial and philanthropic institutions pledged to inject more than $175m to the Alliance for Green Infrastructure in Africa (AGIA), which is intended to help scale up financing for climate-aligned infrastructure projects across the continent via early-stage project preparation and blended development capital. It is targeting a first close of $500m. 

COP28 host the UAE made headlines on the opening day of the summit by announcing it would create a $30bn climate-related investment fund known as Alterra, which has a target of mobilising $250bn of investment into carbon emissions reductions and climate resilience projects by 2030. Part of the vehicle’s initial commitment is allocated to the development of over 6 gigawatts of clean energy capacity in India.

The Alterra fund, which attracted BlackRock, Brookfield and TPG as launch partners, is primarily a profit-seeking vehicle targeted at climate projects, rather than a development initiative. The UAE said it believed its presence as an investor in projects would be catalytic, giving others the confidence to invest too. A $5bn component of the total is set aside for a vehicle intended to provide risk mitigation capital to incentivize investment flows into developing countries. 

The Green Climate Fund, spawned by the Paris climate change agreement,  received pledges of fresh funding from six countries, bringing total pledges to $12.8bn from 31 countries. There were also new commitments to the Least Developed Countries Fund and Special Climate Change Fund, which now  total more than $174m. New pledges of nearly $188m were made to the Adaptation Fund, the UN climate change committee said.

Among other announcements at the summit, Amsterdam-based asset manager ILX said that it was joining the Net Zero Assets Managers (NZAM) initiative, which commits it to supporting the goal of investing aligned to Net Zero emissions by 2050 or sooner. It is a piece of good news for the alliance, which has lost some high-profile investment firms from its ranks in the past

Social justice in focus

The social impacts of climate change are also assuming increasing importance in discussions with every COP meeting. There was much talk of the need for a just transition whereby climate finance supports both economic and social development. 

The Impact investing Institute’s Boyle said that failing to do so would mean the global cooperation needed to make net zero a reality would not be forthcoming. 

“The imperative for capital allocation where it is most needed was emphasised, with a focus on placing people at the core of the transition to a low-carbon economy,” he said.

The continuing struggle of countries in the developing world most affected by global warming to secure greater funding from rich nations to pay for the impact of climate change-related disasters received a boost with an agreement on implementing a loss and damage fund and associated funding arrangements. The  UN climate change committee reported that commitments to the fund has reached $700m by the end of the summit. Representatives of developing countries still left the summit underwhelmed by scale of support for climate impacts that could potentially end up costing trillions of dollars to ameliorate. 

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